000344 J.P. Morgan to Track U.S. Restaurants

New York - J.P. Morgan analyst John Ivankoe initiated coverage of the restaurant chains McDonald's Corp. and Wendy's International Inc. with buy ratings, and started Tricon Global Restaurants Inc. with a market performer rating.

-- started Starbucks Corp. with a long-term buy, Brinker International Inc. with a buy, and Darden Restaurants Inc. with a market performer.

-- set a $39 price target for McDonald's and said the company's “macro, segment and concept environment in the United States remains favorable.”

-- said its international growth remains intact.

-- said operating income remains dominated by mature, stable markets of the U.S. and Europe, which represent about 80% of operating income.

-- set a $25 price target for Wendy's and said U.S. same-store sales appear on track to post gains of 3-4% for 2000.

-- “With these comp levels, store margins should be flat to slightly positive,” Ivankoe said.

-- said Wendy's Tim Horton's Canadian business appears to be processing well in terms of same-store sales and unit development.

-- said Tricon's KFC, Pizza Hut and Taco Bell brands are the market-share leaders in the stable chicken, pizza and Mexican segments.

-- “Through an increasingly franchise-dominated ownership structure and less financial leverage, the company has decreased its earnings volatility,” Ivankoe said.

"Our market performer rating reflects below-consensus estimates, weak comp performances at two domestic brands this year, and our belief that management needs several high-quality, issue-free quarters to regain Street credibility.

-- set a $40 price target for Starbucks, saying the coffee giant represents “one of the biggest brand growth opportunities within consumer branded companies today.”

-- expects Starbucks will be a dominant multinational brand, citing the 100- plus-store Japanese market that is approaching profitability and the 125-plus- store UK market that is posting strong double-digit comps.

-- said the turnaround at Darden Restaurants' Olive Garden restaurants has been successful, but “we believe the final remodeling stage represents a riskier and lower-return investment proposition.”

-- sees opportunity in Darden's Red Lobster business, adding that future margin and profit improvements will demand on whether Darden can boost same- store sales at Red Lobster.

-- set a $32 price target for Brinker International over 12 months, citing positive same-store sales at its Chili's restaurants for over 12 quarters.

-- said that “Brinker posses a respected, tenured management team that has brought the company back from its mid-1990s mistakes.”

-- Shares of McDonald's were up 5/16 to 30-5/16 on the New York Stock Exchange, while Tricon was up 3/16 to 26-11/16, Wendy's was up 11/16 to 15-9/16, Darden was up 5/16 to 13-1/8, and Brinker was up 1-3/16 to 24. Starbucks was up 1-9/16 to 35 on the Nasdaq.

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