On Wednesday, KeyBanc Capital Markets initiated coverage on Sweetgreen Inc (NYSE: SG), assigning a "Sector Weight" rating to the company's shares. The firm's analysis identified Sweetgreen as a brand with significant potential for growth, particularly in terms of increasing its already robust average unit volume. This increase, according to KeyBanc, could result in corresponding margin expansion and a rate of store growth that is among the best in class.
The analyst highlighted Sweetgreen's strategic position to capitalize on automation opportunities. This is evidenced by the current progress of the company's 'Infinite Kitchen' concept, which has about 10 locations in operation out of nearly 250 stores. Sweetgreen's early and meaningful implementation of automation is seen as a unique advantage for the brand.
Despite the optimistic outlook for Sweetgreen's growth into 2025 and beyond, KeyBanc has chosen a cautious stance with the Sector Weight rating. The firm points to Sweetgreen's impressive stock performance, which has seen an increase of over 230% year-to-date, significantly outpacing the S&P 500's 27% gain.
The analyst noted that Sweetgreen's valuation, trading at over 50 times its estimated 2026 earnings before interest, taxes, depreciation, and amortization (EBITDA), is a factor in their decision. KeyBanc is looking for a more attractive entry point for investment in Sweetgreen's stock, suggesting that the current valuation may be steep relative to future earnings potential.
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