Restaurant Sales Soaring: 4 Stocks Poised for a 2024 Rally
Sales at U.S. restaurants increased steadily in 2023 despite inflationary pressure as an increasing number of Americans dined outside. Sales at food services and drinking places totaled $94.7 billion in November, increasing 2% month over month, the Commerce Department said.
Year over year, sales jumped a solid 11% in November. Sky-high inflation that peaked at 9.1% in June 2022 saw the Federal Reserve adopting an aggressive monetary campaign, raising interest rates by 525 basis points to take its benchmark policy rate to the range of 5.25-5.50%.
Price pressures amid higher borrowing costs saw consumers cutting down on expenses. This also saw the retail sector taking a major hit. However, sales at restaurants and bars continued to soar through 2023.
Indeed, during the inflation crisis, growth in sales at restaurants, bars and similar establishments exceeded the rate of price increases.
Since February 2020, or just before the onset of the pandemic, sales at food services and drinking places have surged 38%.
The restaurant industry is poised to grow further in 2024 as inflation has been declining sharply over the past year, prompting the Federal Reserve to keep interest rates steady in its past three meetings.
Expectations are now high that the Federal Reserve will go for multiple rate cuts in 2024 as inflation is nearing the Fed’s 2% target.
The Fed’s favorite inflation gauge, the personal consumption expenditures (PCE) price index, declined 0.1% in November, the first drop since April 2022. PCE inflation declined to 2.6% in November on a year-over-year basis after increasing 2.9% in October.
Lower borrowing costs bode well for the restaurant industry as it will allow consumers to spend more freely. Given this situation, investing in restaurant stocks seems to be a wise idea.
Our Choices
We have narrowed our search to four restaurant stocks that have strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Wingstop Inc. WING franchises and operates restaurants. WING’s operating segments are, namely, Franchise and Company. Wingstop offers cooked-to-order, hand-sauced and tossed chicken wings.
Wingstop’sexpected earnings growth rate for next year is 18.3%. The Zacks Consensus Estimate for current-year earnings has improved 9.1% over the past 60 days. WING currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arcos Dorados Holdings Inc. ARCO operates as a franchisee of McDonald's, with its operations divided into Brazil, the North Latin America division, South Latin America and the Caribbean division. ARCO also runs quick-service restaurants in Latin America and the Caribbean.
Arcos Dorados’ expected earnings growth rate for next year is 15.9%. The Zacks Consensus Estimate for current-year earnings has improved 9.3% over the past 60 days. Currently, ARCO sports a Zacks Rank #1.
Brinker International, Inc. EAT primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. EAT took over Chili’s, Inc., a Texas corporation, in September 1983 and completed the acquisition of Maggiano’s in August 1995. Chili’s is a preeminent leader in the bar & grill category of casual dining. The brand has been functioning for over the last 40 years.
Brinker International’s expected earnings growth rate for next year is 9.5%. The Zacks Consensus Estimate for current-year earnings has improved 7.9% over the past 60 days. EAT currently carries a Zacks Rank #1.
Shake Shack Inc. SHAK restaurants operate in the United States and internationally. SHAK operates and grants licenses for Shake Shack restaurants, commonly known as "Shacks." Here Shake Shackpresents a menu featuring burgers, chicken, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, wine and additional offerings.
Shake Shack’s expected earnings growth rate for next year is 38.2%. The Zacks Consensus Estimate for current-year earnings has improved 41.7% over the past 60 days. SHAK currently has a Zacks Rank #2.
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