For Immediate Release
Chicago, IL – May 22, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Chipotle Mexican Grill, Inc. CMG, McDonald's Corporation MCD, Shake Shack Inc. SHAK, Yum China Holdings, Inc. YUMC and J D Wetherspoon plc JDWPY.
Here are highlights from Friday’s Analyst Blog:
5 Restaurant Stocks to Buy Today
The retail sector today is a study in contrasts.
It’s no secret that escalating food prices are shrinking disposable income, making bargain hunting a big factor in retail. As one would expect, this is helping discounters maintain volumes (Refinitiv data shows BJ’s Wholesale, Walmart and Costco all on track to report Q1 gains of 6.0%, 5.5% and 5.0%, respectively).
On the other end however, the Hotels, Restaurant & Leisure sector is headed for a Q1 growth rate of 3245.6% from last year. Understandably, with people traveling and socializing so much, things like cosmetics are also doing well. Ulta Beauty, for example, is on track to record 8.7% growth.
Overall, the Refinitiv U.S. Retail and Restaurant Q1 earnings index, which tracks changes in the earnings per share (EPS) of companies in the retail and restaurant sector, is expected to grow 30.9% in the first quarter of 2023.
Retail earnings are expected to grow 25.7%, constrained by declines in the department store and apparel segments, as a result of the continued shift to online shopping, rising prices (which hurts demand for discretionary items) and a weak economy (and resultant softness in consumer spending).
The Restaurants segment is therefore the main driver of growth, with segment earnings expected to grow 36.1% in the first quarter. Restaurant earnings are being driven by things like the continued recovery in dining out as the COVID-19 pandemic subsides, the strong demand for delivery and carryout as conveniences that just can’t be sacrificed now, and the rising prices of food and labor, which are being passed on to consumers in the form of higher prices.
The monthly retail sales data from the Commerce Department shows that the spike in January was followed by declines in the following two months. The expectation is for a modest recovery in April (final numbers have not yet been released).
Retail data is particularly significant in the current environment because it is a gauge of the strength in consumers, the main factor holding off a recession right now. Therefore, everyone is looking at Retail.
Restaurants are clearly looking up, based on the Industry Rank of #46, placing this group in the top 18% of 250+ Zacks-classified industries. Buy-rated stocks that belong to these top industries have an outsized chance of near-term appreciation in share prices. Therefore, this is one of the segments that we should be looking at for winners:
Chipotle Mexican Grill, Inc.
Newport Beach, CA-based Chipotle beat March quarter estimates by 18.1% on revenue that beat by 1.4%. The company’s estimates for 2023 and 2024 jumped a respective 5.7% and 3.8% in the last 30 days. At these levels, they represent 13.9% revenue growth and 33.4% earnings growth for 2023 and 12.4% revenue growth and 19.7% earnings growth for 2024.
CMG shares are up 48.6% year to date but are still trading at a discount to their high point over the past year. Since this is despite the fact that prospects continue to improve, further upside from these levels seems likely.
Chicago-based McDonald's Corp. beat earnings and revenue estimates for the March quarter by 13.9% and 5.8%, respectively. Its estimates have increased 5.0% and 3.7% in the last 30 days. Analysts currently expect its revenue and earnings to grow 7.7% and 9.2% in 2023 and by 7.0% and 9.5% the following year.
MCD shares are up 11.3% year to date. Since it is trading close to its median valuation over the past year, despite improving prospects and strong estimate revisions, we may expect upside from the current level.
Shake Shack Inc.
New York-based Shake Shack reported a revenue surprise of 3.1% and earnings surprise of 88.9% in the March quarter. Thereafter, its 2023 and 2024 earnings estimates have jumped 400% and 375%, respectively. Whereas it was earlier reporting losses, analysts think it will now generate profits. The 129.0% earnings growth expected in 2023 will be based on revenue growth of 21.3%. Additionally, earnings growth of 111.1% in 2024 will be based on revenue growth of 16.2%.
The shares are up 62.3% year to date, and judging from the above, further upside is in the cards.
Yum China Holdings, Inc.
Shanghai, China-based Yum China is the largest restaurant company in China, with over 13,000 restaurants across over 1,800 Chinese cities. Its two operating segments are KFC and Pizza Hut although it has many other brands including KFC, Pizza Hut, Little Sheep, Huang Ji Huang, Lavazza, COFFii & JOY, Taco Bell, and East Dawning brands, which specialize in chicken, pizza, hot pot cooking, simmer pot, Italian coffee, specialty coffee, Mexican-style food, and Chinese food categories. V-Gold Mall, its mobile e-commerce platform, sells electronics, home and kitchen accessories, and other general merchandise, as well as fried rice, steak, pasta and other meals. In addition, it operates franchise restaurants under the KFC, Pizza Hut, Huang Ji Huang, Taco Bell, Little Sheep, East Dawning, Lavazza and COFFii & JOY names.
After beating earnings estimates by 60.5% and revenue estimates by 3.1% in the March quarter, Yum China’s estimates for 2023 and 2024 jumped a respective 8.9% and 5.7%. Analysts currently expect revenue and earnings growth of 19.6% and 85.7% in 2023 followed by 12.8% and 22.8% in 2024.
The shares are up 12.0% year to date. And although trading at a premium to the S&P 500, they’re still at a discount to their median value over the past year (based on P/E). Given the growth prospects, the Chinese reopening and analyst optimism, the shares are likely to trade higher.
J D Wetherspoon plc
Watford, UK-based J D Wetherspoon owns and operates pubs and hotels in the United Kingdom and the Republic of Ireland.
J D Wetherspoon’s estimates are on the rise. The Zacks Consensus Estimates for 2023 and 2024 are up 10% and 8.4% in the last seven days. This represents earnings growth of 227.9% in 2023 and 40.6% in 2024. Revenue growth is of course expected to be much slower at 125.0% and 3.8%, respectively.
The shares are up 77.9% year to date.
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