Yahoo Finance 5 Thriving Restaurant Stocks to Buy Defying a Weak Industry
The U.S. restaurant industry continues to be impacted by high wages, food cost inflation and traffic woes in 2024 after two years of strong growth. The Zacks defined Retail – Restaurants industry is currently in the bottom 38% of the Zacks Industry Rank.
In the past year, the industry has declined 6.4%, while its year-to-date return is a negative 1.8%. Since it is ranked in the bottom half of Zacks Ranked Industries, we expect the restaurant industry to underperform the market over the next three to six months.
The restaurant industry has been facing declining traffic for quite some time. A rapid increase in menu prices is the primary reason behind traffic erosion. Restaurant operators are grappling with the high cost of operations.
Intense competition, high wages and food cost inflation are concerning. The industry continues to bear increased expenses, which have been affecting margins. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins.
The Department of Commerce, in its May retail sales report, revealed that sales at restaurants and bars increased 3.8% year over year but fell 0.4% month over month.
Restaurant operators are trying to remain buoyant focusing on digital innovation, sales-building initiatives and cost-saving efforts. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales.
Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth. Moreover, the industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks.
Meanwhile, a handful of restaurant stocks have flourished year to date, defying the industry’s weak performance. Investment in these stocks with a favorable Zacks Rank should provide good returns in the near future.
Our Top Picks
We have narrowed our search to five restaurant stocks that have provided strong year-to-date returns beating the broad market S&P 500 Index. These stocks have solid growth potential for the rest of 2024 and have seen positive earnings estimate revision in the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart b elow shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Chipotle Mexican Grill Inc. CMG is benefiting from its digital efforts, Chipotlane add-ons and marketing initiatives. This along with strength in digital sales and new restaurant openings, has been driving CMG. Also, a strong comparable restaurant sales growth bodes well.
For 2024, CMG anticipates comps growth in the mid to high-single-digit range, driven by its transaction growth and strong comps growth trends. CMG intends to focus on the stage-gate process and leverage digital programs to expand access and convenience.
Zacks Rank #2 Chipotle Mexican Grill has an expected revenue and earnings growth rate of 15% and 23.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days. The stock price of CMG has climbed 50% year to date.
Wingstop Inc. WING franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. WING offers classic wings, boneless wings, and tenders that are cooked-to-order, and hand-sauced-and-tossed in various flavors.
Zacks Rank #1 Wingstop has an expected revenue and earnings growth rate of 27.5% and 37.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last seven days. The stock price of WING has soared 67.2% year to date.
Texas Roadhouse Inc. TXRH is a full-service, casual dining restaurant chain offering assorted seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. TXRH operates restaurants under the Texas Roadhouse and Aspen Creek names.
TXRH offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, an assortment of hamburgers, salads and sandwiches. TXRH also provides supervisory and administrative services for other licensed and franchise restaurants.
Zacks Rank #1 Texas Roadhouse has an expected revenue and earnings growth rate of 15.2% and 32.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the last 30 days. The stock price of TXRH has surged 39.1% year to date.
Brinker International Inc. EAT primarily owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar and Maggiano’s Little Italy brands. In the last reported quarter, EAT registered benefits from effective marketing and pricing strategies.
EAT also reported sequential improvements in guest traffic, surpassing industry benchmarks. Also, focus on menu adjustments bodes well. EAT intends to focus on balancing value offerings with margin expansion and adaptability to changing consumer preferences to drive growth.
Zacks Rank #2 Brinker International has an expected revenue and earnings growth rate of 3% and 12%, respectively, for next year (ending June 2025). The Zacks Consensus Estimate for next-year earnings has improved 2.3% over the last 30 days. The stock price of EAT has jumped 57.7% year to date.
El Pollo Loco Holdings Inc. LOCO develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. LOCO operates and franchises restaurants located in California, Nevada, Arizona, Texas, Colorado, Utah, and Louisiana. LOCO also licenses its brand to restaurants in the Philippines.
LOCO specializes in flame-grilled chicken in a variety of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads.
Zacks Rank #2 El Pollo Loco Holdings has an expected revenue and earnings growth rate of 1.5% and 0.01%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.2% over the last 60 days. The stock price of LOCO has advanced 22.9% year to date.
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Brinker International, Inc. (EAT) : Free Stock Analysis Report
Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
El Pollo Loco Holdings, Inc. (LOCO) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report