On Friday, Goldman Sachs (NYSE:GS) adjusted its stance on Sweetgreen Inc (NYSE: SG), downgrading the stock from Buy to Neutral and setting a price target of $40.00. This revision comes after Sweetgreen's shares have significantly outperformed the market, with a year-to-date increase of 273% compared to the S&P 500's 25% gain. The analyst at Goldman Sachs stated that the current share price reflects the company's fair value, prompting the downgrade.
The analyst noted that while the Infinite Kitchen initiative remains a key element for Sweetgreen's long-term productivity and growth, the expected near-term catalysts appear to be already factored into the stock's price. This assessment led to the decision to lower the investment rating.
Furthermore, Goldman Sachs revised its EBITDA forecasts for Sweetgreen for the years 2024 through 2026, reducing them by an average of 12%. The downward revision is attributed to anticipated increases in the cost of goods sold (COGS) and operating expenses, coupled with a slower pace of general and administrative (G&A) leverage. However, these negative impacts are partially mitigated by the anticipated improvements in labor cost productivity, which are expected to result from the expedited deployment of Infinite Kitchens.
Despite the downgrade, Goldman Sachs maintains a constructive outlook on Sweetgreen's long-term growth trajectory, driven by the Infinite Kitchen concept and ongoing product innovation. Nonetheless, the firm suggests that there may be more attractive investment opportunities with higher upside potential within its coverage universe. The current price target of $40 implies a 5% downside potential, which contrasts with an average 9% upside potential for other stocks covered by the analyst.
In other recent news, Sweetgreen Inc. has been the subject of multiple analyst updates. TD Cowen maintained a Buy rating for the company, citing the financial benefits of its Infinite Kitchen initiative, which could yield a 56% cash-on-cash return on capital expenditures and contribute to a 70-130 basis points increase in the net annual EBIT margin. Meanwhile, Piper Sandler downgraded Sweetgreen's stock from Overweight to Neutral, while Oppenheimer increased its price target to $40.00.
Sweetgreen has also announced the appointment of Christopher Tarrant as Senior Vice President and Chief Development Officer. The company plans to open 24 to 26 new restaurants in 2024, more than half of which will feature an Infinite Kitchen.
For fiscal year 2024, Sweetgreen projects a revenue range of $670 million to $680 million and an adjusted EBITDA between $16 million and $19 million. These recent developments reflect various perspectives on Sweetgreen's potential growth, with particular emphasis on the Infinite Kitchens initiative and the company's expansion plans.
InvestingPro Insights
Recent data from InvestingPro adds context to Goldman Sachs' downgrade of Sweetgreen (NYSE: SG). The stock's significant return over the last week (10.99%) and strong performance over the last three months (60.76% price total return) align with the analyst's observation of Sweetgreen's market outperformance. Currently trading at 98.67% of its 52-week high, the stock appears to be nearing full valuation, supporting Goldman's view that the share price reflects fair value.
InvestingPro Tips highlight that Sweetgreen operates with a moderate level of debt and its liquid assets exceed short-term obligations, which could provide some financial stability. However, the company is not profitable over the last twelve months, with a negative P/E ratio of -57.84, corroborating Goldman's concerns about increased COGS and operating expenses.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Sweetgreen, providing a deeper understanding of the company's financial position and market performance.
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