Top 5 Restaurant Stocks to Tap the Santa Clause Rally
The Fed set the stage for this year’s Santa Claus rally in mid-December after its latest FOMC meeting. The rally started amid a clear indication from the central bank that the current interest rate hike cycle, which elevated the Fed fund rate to a 22-year high of 5.25-5.50% from 0-0.25% in March 2022, finally ended.
Moreover, the December FOMC meeting dot-plot has shown that on average, Fed officials are expecting at least three rate cuts of 25 basis points each in 2024, followed by four more rate cuts of a full one percentage point in 2025.
At this stage, it should be prudent to invest in restaurant stocks with a favorable Zacks Rank. U.S. restaurant businesses continue to thrive in 2023 after an impressive turnaround last year. Sales at U.S. restaurants have not been impacted much despite severe inflationary pressure. The Department of Commerce reported that expenditure on food and beverage stores rose 0.1% in November over the prior month and 0.2% year over year.
Innovative Measures
The restaurant industry is gradually witnessing improving sales. The improvement can be attributed to the enhancement in fundamentals such as modifications in business processes, staffing, floor plans and technology.
Restaurant operators’ focus on digital innovation, their sales-building initiatives, and cost- saving efforts have been acting as the major catalysts. With the growing influence of the Internet, digital innovation has become the need of the hour. Big restaurant chains are constantly partnering with delivery channels and digital platforms to drive incremental sales.
The restaurant industry is consistently gaining from the spike in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks, owing to the coronavirus pandemic. Per the National Restaurant Association, more than 60% of restaurant foods are consumed off-premise.
By 2025, off-premise is likely to account for approximately 80% of the industry's growth. The idea of providing off-premise offerings along with a connected curbside service is steadily garnering positive customer feedback.
Our Top Picks
We have narrowed our search to five restaurant stocks that have strong growth potential for 2024. These stocks have seen positive earnings estimate revision in the last 30 days. Each of our picks carries either a Zacks Rank # 1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Wingstop Inc. WING franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. WING offers cooked-to-order, hand-sauced and tossed chicken wings.
Zacks Rank #1 Wingstop has an expected revenue and earnings growth rate of 15.6% and 17.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 0.7% over the last 30 days.
Carrols Restaurant Group Inc. TAST is the largest BURGER KING franchisee in the United States with over 800 restaurants and has operated BURGER KING restaurants since 1976. TAST operates as a Burger King and Popeyes franchisee.
Zacks Rank #1 Carrols Restaurant Group has an expected revenue and earnings growth rate of 3.8% and 8.3%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 15.6% over the last 30 days.
Shake Shack Inc. SHAK has been benefiting from various digital initiatives, strong same-shack sales and unit expansion efforts. SHAK’s digital retention continues to be strong. It has also been making more investments in digitization in an effort to sustain its digital guest enhancement strategies in the near term.
Zacks Rank #2 Shake Shack has an expected revenue and earnings growth rate of 15.1% and 32.9%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 2.2% over the last 30 days.
Arcos Dorados Holdings Inc. ARCO operates as a franchisee of McDonald's with its operations divided in 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 has operations in territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela.
Zacks Rank #1 Arcos Dorados has an expected revenue and earnings growth rate of 10.6% and 15.5%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 8% over the last 30 days.
Brinker International Inc. EAT primarily owns, operates, develops and franchises various restaurants under Chili’s Grill & Bar (Chili’s) and Maggiano’s Little Italy (Maggiano’s) brands. EAT believes that more focus on sales channel expansion and brand-building awareness is likely to drive growth in the upcoming periods.
EAT remains steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives, including streamlining menu innovation, strengthening its value proposition, better food presentation, advertising campaigns and kitchen system optimization.
Zacks Rank #1 Brinker International has an expected revenue and earnings growth rate of 5.1% and 26.2%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 7.9% over the last 60 days.
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Brinker International, Inc. (EAT) : Free Stock Analysis Report
Carrols Restaurant Group, Inc. (TAST) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
Shake Shack, Inc. (SHAK) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
