After a robust 2017, the restaurant industry seems to be headed for an impressive 2018. Understandably, an increasing number of Americans are spending more on eating out. With steady wage growth, stable jobs, higher consumer confidence and unemployment level at a 19-year low, Americans are not shying away from spending more at restaurants.
Moreover, retail sales, which grew 0.5% in July, were boosted by higher spending at food services and drinking places. Also, restaurants are relatively safe from the ongoing tariff war.Given this scenario, investing in restaurant stocks looks like a profitable option.
July Restaurant Sales Rise
Per data released by the Commerce Department, sales at restaurants and drinking places jumped 1.3% in July to $61.6 billion, reflecting an increase of 9.7% year over year. Also, this brings the three-month annualized gain to 25.3%, marking its fastest pace in figures since 1992.
Per insights from TDn2K’s Restaurant Industry Snapshot, restaurants’ same store sales increased 0.5% in July. This definitely is an indication of a booming restaurant market, with Americans willing to shell out more on eating out. Moreover, July retail sales increased 0.5%, driven by higher spending at restaurants.
The restaurant industry came up with an impressive show in 2017 and seems to have done well in the last reported quarter too. The U.S. Restaurant industry had generated revenues of $799 billion in 2017, increasing 4.3% from 2016, according to the National Restaurant Association (NRA). This also marks the eighth consecutive year of real growth in restaurant sales.
Favorable Economic Scenario
The U.S. economy is stepping up, which is a good sign for the restaurant industry. Higher wages, a low jobless rate and upbeat consumer confidence, all indicate a bullish economy. Also, U.S. consumer confidence rose in the beginning of July.
At the same time, restaurants seem to be in a relatively safer space compared to many other industries, which are already feeling the pain of higher tariffs arising out of trade disputes. Per restaurant invoice management company Plate IQ, the U.S. restaurant industry is likely to save more than $7.5 million in 2018 due to Trump’s trade war.
Given that the United States exports a lot of agricultural and food products like pork, cheese and beef, higher tariffs will hit farmers with oversupply. As a result, prices will drop, making food items cheaper for restaurants.
The jump in restaurant sales in July is an indication that consumers are comfortable and happy spending at restaurants. Moreover, the restaurant industry seems to be in a relatively safer space amid trade war fears. Given this scenario, U.S. restaurant stocks look delectable at this point. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.
BJ's Restaurants, Inc. BJRI owns and operates restaurants across the United States. BJ's Restaurants has an expected earnings growth of 41.8% for the current year.
BJ's Restaurants sports a Zacks Rank #1 and has a VGM Score of B. The company’s projected growth rate for the current year is 50.4%. The Zacks Consensus Estimate for the current year has improved 6.5% in the past 60 days.
Carrols Restaurant Group, Inc. TAST is the largest BURGER KING franchisee in the United States, with more than 800 restaurants. It has operated BURGER KING restaurants since 1976.
Carrols Restaurant has a Zacks Rank #2 and a VGM Score of A. The company’s projected growth rate for the current year is 80%. The Zacks Consensus Estimate for the current year has improved 5.9% in the past 60 days.
Fiesta Restaurant Group, Inc. FRGI owns and operates quick-casual restaurants under the Pollo Tropical(R) and Taco Cabana(R) brand names in the United States.
Fiesta Restaurant has a Zacks Rank #2 and a VGM Score of B. The company’s projected growth rate for the current year is 20%. The Zacks Consensus Estimate for the current year has improved 2.9% in the past 60 days.
Ruth's Hospitality Group, Inc. RUTH, headquartered in Winter Park, FL, is the largest fine dining steakhouse company in the United States.
Ruth's Hospitality has a Zacks Rank #2 and a VGM Score of A. The company’s projected growth rate for the current year is 26.4%. The Zacks Consensus Estimate for the current year has improved 2.2% in the past 60 days.
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