Yahoo Finance 8 Stocks to Profit From America's Love of Burgers
Fill both your belly and your portfolio.
What's for dinner? Often, the answer is "let's go out tonight." Restaurant industry same-store sales surged to a 10-year high in the first quarter of the year, according to Credit Suisse, as rising consumer confidence, falling gasoline prices and a better macroeconomic backdrop are fueling the trend of dining out. Despite the rise of some fast-casual chains like Chipotle Mexican Grill and Panera Bread Co., a hamburger remains the meal of choice. Americans chow down on 50 billion burgers a year, and popular burger companies have been successful in embracing the fast-casual trend.
Here are eight companies tapping in to Americans' love for burgers, and are the best stocks to buy to cash in on the trend.
Darden Restaurants (DRI)
Darden owns and operates restaurants throughout the U.S. and Canada, including Yard House, Olive Garden, LongHorn Steakhouse and The Capital Grille brands. Credit Suisse ranks DRI stock as a top pick moving into the second half of 2015, with an "outperform" recommendation and a $77 target price. Credit Suisse analysts note "potential for significant earnings per share upside as DRI implements wide-ranging improvements in operations, the cost structure and capital efficiency."
Red Robin Gourmet Burgers (RRGB)
Red Robin owns, operates and franchises more than 500 Red Robin restaurants throughout the U.S. and Canada. Jefferies rates RRGB stock a "buy," with a price target at $97. The company's "growth story is very much on track and not fully reflected in stock," Jefferies wrote in an Aug. 11 research report. "The development pipeline continues to be in great shape, with new store economics strong and sales per square foot strengthening." This could be a growth story as Red Robin sees opportunity to add stores over the next three to five years.
Jack In The Box (JACK)
This company operates and franchises Jack in the Box and Qdoba Mexican Grill fast-casual restaurants in the U.S. Jefferies calls JACK stock a "buy" with a target price of $107 per share. "Both brands are delivering some of the best same-store sales in the group and potentially offer one of the most underappreciated development opportunities in the industry. While investors are aware of the potential acceleration in Qdoba development, the opportunity for meaningful Jack in the Box unit growth is still under the radar, and we think neither is fully reflected in the valuation," Jefferies notes.
The Wendy's Co. (WEN)
Wendy's owns and franchises quick service restaurants, with roughly 6,500 locations worldwide. Credit Suisse rated Wendy's as an "underperform" with a $10 target price. "We remain concerned on Wendy's long-term growth potential given the lack of unit growth prospects and the financial burden on franchisees from store purchases and remodeling," Credit Suisse analysts note in a research report.
Shake Shack (SHAK)
Headquartered in New York, the Shake Shack restaurant chain offers the look and feel of a roadside burger stand. In 2014, revenues totaled $119 million. Jefferies rates SHAK stock a "hold" with a price target at $60 per share. Shake Shack recently reported that second-quarter same-restaurant sales surged 12.8 percent versus Wall Street's expectations of an 8.6 percent increase.
McDonald's Corp. (MCD)
New CEO Steve Easterbrook took the reins of this venerable American icon in May and is in the process of a reorganization and turnaround plan. Morningstar gives MCD stock a "three star" or "fairly valued" ranking. "McDonald's fundamentals have weakened in recent years amid increased competition, self-inflicted product pipeline and marketing issues, a tepid macro environment and slow reaction to evolving consumer preferences," says R.J. Hottovy, senior restaurant analyst at Chicago-based Morningstar.
Restaurant Brands International (QSR)
This company includes the consolidation of the Burger King and Tim Horton franchises, making Restaurant Brands International the third-largest global quick-service restaurant chain. "As the integration process continues, we believe management's priorities are relatively straightforward: combine unit growth and same-store sales layers to drive systemwide sales, optimize its corporate cost structure and bolster franchise-level returns. We also believe this combination will better position both brands to adapt to an evolving restaurant landscape," Hottovy says. Morningstar gives QSR stock a "three star" or "fairly valued" ranking.
Five Guys Enterprises
This burger joint is still privately held but could be worth watching. Five Guys first opened in the District of Columbia in 1986 and has expanded to 1,000 locations in the U.S. and Canada. "It is one of the fastest-growing companies in the restaurant space, and we might be looking at an initial public offering in the next few years," Hottovy says. "They've tapped well into the millennial audience, and they've done a good job marketing better products with better ingredients." Stay tuned.
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