3 Reasons Why You Should Dig into These Restaurant Stocks

The coronavirus-led lockdown has cast a pall on the U.S. restaurant industry, resulting in more than 6 million job losses in March and April. Overall, restaurants lost nearly three times more jobs than any other industry. Brands with solid pre-existing off-premise offerings survived the days with shutdown restrictions while the others fell apart.

Even quick-service restaurants which mainly focus on breakfast and late-night dayparts registered a decline in sales because of stay-at-home mandates, according to National Restaurant News. Suffering in sales was more acute for the casual-dining chains. Dine Brands like Brinker EAT and Darden DRI have recorded double-digit negative numbers for the current quarter so far.

However, the business conditions are improving for U.S. restaurants with lockdowns lifting. We’ll tell you why.

Solid Rehiring in May

As the economy started to reopen, a massive job creation was noticed. Restaurants added 1.4 million jobs in May, marking almost half the total job increase last month. In a nationwide survey conducted in mid-May, 62% of restaurant operators who laid off or furloughed staff hired back 48% (on average) of the total employees. About 61% of the operators would hire more in the next one month.

Pent-Up Consumer Demand

Consumers rank dining-out as one of the top three things they intend to do, after the reopening of economies. According to Datassential, the types of venues that are in high demand now are restaurants with outdoor seating, quick-service chains (due to contactless drive-thru), fast-casual chains, and businesses that offer prepared foods or grocery deli. However, with proper safety measures, diners now appear ready to spend more time and money on relatively exotic foods in the post-pandemic world.

Sales to Recover in the Medium Term

In May, 73% of restaurant operators expected their sales volume to take six months to match the same level in the year-ago period. About 17% operators, however, showed immense confidence in the sales recovery in six months to above year-ago levels. Here also, fast casual and quick-service restaurant chains will see a faster rebound.

5 Restaurant Stocks to Buy

Investors should note that restaurant stockscome from a favorable Zacks industry (placed at the top 30% of total 250+ industries in the Zacks universe). Against this backdrop, below we highlight a few restaurant stocks that have a Zacks Rank #2 (Buy) or 3 (Hold).

Papa Johns International Inc. (PZZA)

The Zacks Rank #2 pizza restaurant chain’s comparable sales were up 33.5% in North America and 7.0% internationally in May, due to strong demand. The CEO said, “in May, for the second straight month, Papa John’s team members and franchisees delivered the best sales period in the company’s history.” The success of No Contact Delivery and new products like Papadias drove the results. Earnings estimate for the upcoming quarter has gone up by 38.7% in the past two months.

Domino’s Pizza Inc (DPZ)

Zacks Rank #2 Domino's has invested heavily in digital transformation over the years and reaped the benefit amid the pandemic. Domino’s recently said that U.S. comparable store sales were up 21% from April 20 through May 17.  Earnings estimates for the June quarter were upped by 7 analysts in the past month while none cut the same. Estimates for the quarter also went up by about 7.4%.

Cracker Barrel Old Country Store Inc. (CBRL)

The Zacks Rank #2 company has presence in the better-positioned fast-casual segment. The earnings estimate for the upcoming July quarter has moved up to 3 cents in the past seven days from a loss of $2.08 per share. Analysts are of the opinion that Cracker Barrel's "rural exposure and everyday value [mitigates] COVID and economic risks."

Wingstop Inc. (WING)

The Zacks Rank #2 company offers cooked-to-order, hand-sauced and tossed chicken wings. Prior to the outbreak of COVID-19, off-premise sales made up for 80% of its domestic system sales, and digital sales used to account for 40% of sales. Since closing the dining rooms on Mar 16, 100% of sales have been off premise and digital orders account for nearly 65% of sales. The business model should make the company a COVID-19 winner.

Texas Roadhouse Inc. (TXRH)

This is a Zacks Rank #3 full-service casual dining restaurant chain. However, its earnings estimate for the upcoming quarter shot up by 367% in the past month. In fact, the company announced expansion plans amid pandemic.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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Dominos Pizza Inc (DPZ) : Free Stock Analysis Report
 
Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report
 
Brinker International, Inc. (EAT) : Free Stock Analysis Report
 
Texas Roadhouse, Inc. (TXRH) : Free Stock Analysis Report
 
Papa Johns International, Inc. (PZZA) : Free Stock Analysis Report
 
Cracker Barrel Old Country Store, Inc. (CBRL) : Free Stock Analysis Report
 
Wingstop Inc. (WING) : Free Stock Analysis Report
 
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