Evercore ISI’s David Palmer explains why he’s watching the casual dining space heading into 2026

Industry Overview - The restaurant business and food industry experienced a volatile year due to weak consumer sentiment and tariffs [1] - Value deals and discount campaigns have shown some success in revitalizing brands, but many still face challenges [1] Key Factors to Watch - Commodity inflation, particularly beef prices, will be a significant factor, especially for company-operated fast-casual chains like Chipotle and steak players like Texas Roadhouse [2] - Demand destruction in supermarkets could positively impact companies like Texas Roadhouse and Darden, which spend significantly on beef [3] - The net effect on middle-income consumers will be crucial, with potential consumer engagement expected by the second quarter of 2026 [3] Investment Opportunities - The dining space looks promising, even considering headwinds from GLP1s; casual dining is less affected by negative factors and benefits from early tax relief [4] - Brinker, with its strong execution and value offerings, is a favored name, along with Darden [5] - Value players within the fast-food sector may perform well; McDonald's is mentioned as a GARP (Growth at a Reasonable Price) name [5]