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Sweetgreen (NYSE:SG) was cut to Market Perform from Outperform, with its price target lowered to $12 per share from $19 by Cowen analysts on Tuesday.
They told investors in a research note that the firm is worried the external environment presents risks to SSS that will challenge the company’s organic path to profitability as they lower 2023-25E adj EBITDA below consensus.
“We continue to believe sweetgreen successfully marries the two industry mega-themes of the last decade of guest facing technology & transparent food sourcing that presents a long-term moat for the business,” stated analysts. “However, the external environment has changed significantly since the November 2021 IPO that we believe will present continued challenges to the business for the foreseeable future.”
Some of the headwinds Cowen sees Sweetgreen running into are that the firm’s proprietary survey data indicates deteriorating value perceptions vs Sweetgreen’s fast-casual peers, a higher interest rate environment prompting more prudence in cash deployment, and a more permanent work-from-home/hybrid work environment lacking a 2023 catalyst for improvement.
“We worry 4Q22 results & initial 2023 guidance on 2/23 could be a negative catalyst as the company may guide comps & (to a lesser degree of conviction) adj EBITDA conservatively below consensus after a challenging 2022,” the analysts add.
In addition, Cowen believes Sweetgreen’s target for 1,000 stores by 2030 is optimistic and they model 900. They also see the company’s 2023 consensus development estimates as fair, although analysts said the firm thinks consensus’ embedded acceleration in 2024-25 is aggressive.
