The restaurant industry has been buzzing after Jack in the Box (NASDAQ:JACK) announced its intention to buy Mexican fast-food giant Del Taco (NASDAQ:TACO). The deal is likely to reinvigorate the sector and boost restaurant stocks.
The deal values both companies at $575 million, including debt. Moreover, both companies will expect to see over $10 million in benefits from the acquisition.
The coronavirus pandemic tore apart the restaurant industry. Many restaurants had trouble adapting, and some failed. Still, there have been significant changes in how we eat since then, which means many of these companies are now able to pivot back into brick-and-mortar businesses with pickups or deliveries as well.
With labor shortages and competition from industries with higher wages, restaurants face a new challenge amid reopening. Finding employees to work is proving difficult as they struggle through this volatile time. Nevertheless, a few restaurant stocks effectively weathered the Covid 19-induced headwinds and have emerged even stronger.
Here are three restaurant stocks to consider now:
Restaurant Stocks To Buy: Yum! Brands, Inc. (YUM)
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Yum! Brands are perhaps a no-brainer on any restaurant stocks list. It operates some of the most recognizable brands in the fast-food business, including Taco Bell, Pizza Hut and KFC.
Over the years, the company has done exceedingly well in growing its revenue base in tandem with earnings. In the past year, the company stayed strong growing revenues at 15% on a year-over-year basis boosting YUM stock by double- digits.
The company recently wrapped up its third-quarter results, comfortably beating consensus estimates. Dine-in, digital and off-premise sales expanded significantly. Moreover, it opened up 760 new restaurants over the quarter, including 379 launches outside China.
Over the long term, the firm will look to expand its scope and scale through strong unit economics and well-run franchises. Additionally, it plans to expand its restaurant footprint steadily every year.
Chipotle Mexican Grill (CMG)
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Fast-food favorite Chipotle transitioned towards digital sales at the beginning of the pandemic, and the results were highly impressive. The company managed to boost overall sales by over 7% last year, despite the restriction on in-person dining.
Digital sales grew almost three times compared to 2019, almost 50% of total revenues. Moreover, fundamentals have been stellar in 2021, with double-digit year-over-year growth across all major metrics.
Digital sales continue to grow at a healthy pace but have dipped slightly as investors revert to pre-pandemic behavior. Chipotle’s revenue surged 21.9% in its most recent quarter, while digital sales only rose 8.6%. Additionally, earnings per share increased by almost 90% in the third quarter.
Chipotle still has plenty of upside potential to expand sales growth and its restaurant footprint rapidly despite CMG stock being relatively expensive.
Restaurant Stocks to Buy: Starbucks Corporation (SBUX )
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Starbucks is one of the most popular coffee retailers globally, operating across 83 markets. Additionally, it sells commodities under several noteworthy brands, including Princi, Evolution Fresh, Teavana and others. Though the coronavirus devastated SBUX stock and its underlying business, it is now back in top form with strong sales and customer growth.
In its fourth quarter, the coffee chain saw a massive 31% increase in net revenues to $8.1 billion from the prior-year period. Moreover, GAAP operating margin was up at 18.2% from 9% from the same period last year. Additionally, it added a healthy 538 new stores during the quarter.
Starbucks has highlighted highly ambitious growth plans in 2022, which involve hefty investments in expanding its global footprint. The goal is to take the total addressable market for Starbucks past $400 billion within the next three years.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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