We're Drinking Up More Shares of This Coffee Chain

Symbol	Transaction Type	# Shares Traded	Recent Price $	Shares Owned After Trade	% Portfolio
BROS	Buy	495	31.10	3,540	2.4%

After you receive this alert, we will buy 495 shares of Dutch Bros BROS at or near $31.10. Following the trade, the portfolio will own 3,540 BROS shares, roughly 2.4% of the portfolio.

After rebounding nicely following its post-earnings report bottom on August 12, 2024, shares of Dutch Bros rebounded nicely but have traded off again following a downgrade at Piper Sandler to neutral from outperform.

Given the post-earnings rebound in BROS and the distance to that $36 target, it’s somewhat understandable, but we disagree with the move. The move with Piper’s call on BROS was part of the firm tempering its view on fast-casual dining, but when we match up the business model at Dutch Bros versus Chipotle CMG, Portillo’s PTLO Five Guys and others like them, we see very different businesses. That is leading us to scoop up more shares of BROS today, keeping our existing $39 target in place.

Compared to fast-casual restaurants, Dutch Bros also has a far smaller number of inputs, and the average ticket price makes its offerings a more digestible purchase. The businesses also have very different cost structures, part of which is based on their different location sizes. Chipotle locations tend to be around 2,500 to 3,00 square feet while Portillo’s newer locations are 5,500 to 6,000 square feet. By comparison, Dutch Bros locations range between 500 to 1,200 square feet.

During yesterday’s Portfolio Office Hours (which are held Tuesdays between 4 p.m. and 5 p.m. ET in the Forum), one member asked if Dutch Bros should benefit as the Fed moves into a rate-cutting cycle. The answer to this is yes, and it’s for the same reason that cycle should benefit United Rentals URI, Vulcan Materials VMC and Builders FirstSource BLDR. As rates move lower, hurdle rates for projects and the cost of capital should both move lower as well For Dutch Bros that should keep it on path to expand its footprint, while for Builders it means a potential tailwind for its multifamily as well as single-family housing businesses.

While this trade will eat some of the returned cash from our moves earlier today, we still have ample room to build out the portfolio’s BROS shares. We’re not in a rush to do so, and should history repeat itself in September, typically the most difficult month of the year, further opportunities with BROS may emerge.

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(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)

At the time of publication, TheStreet Pro Portfolio was long BROS, URI, VMC and BLDR.