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4 Solid Stocks to Invest in as Restaurant Sales Jump in June
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The U.S. restaurant industry put up a great show in 2023 as it showed tremendous resilience in the face of rising food costs, inflation and higher wages. However, the industry is facing major challenges this year.
Inflation, which declined sharply in 2023, resumed its climb in the first few months of this year. Higher prices impacted sales as traffic waned. High wages and higher food costs have been two major concerns affecting margins.
However, the industry is trying to hold its ground. The Commerce Department said in its June retail sales report that sales at restaurants and bars jumped 0.3% sequentially and 4.4% from the year-ago levels.
The growth in restaurant sales is being driven by solid consumer spending as a result of a steady rise in personal income.
To overcome the challenges, restaurant owners are focusing more on digital innovations, adopting strategies to boost sales, and finding ways to cut costs. The rising impact of the Internet highlights the importance of digital innovation. Major restaurant chains are regularly teaming up with delivery services and digital platforms to increase their sales.
The industry is expected to benefit further once the Federal Reserve starts its easing cycle. The Fed said last month that it plans a single 25 basis point rate cut this year. This is much lower than the three rate cuts projected in March.
However, even a single 25 basis point rate cut is good news, especially since several market participants had expected no rate cuts this year.
Moreover, the latest FOMC "dot plot" indicates a projected total 1% reduction in interest rates by 2025, potentially taking the Fed funds rate to 4.1% by the end of next year. Lower interest rates bode well for the restaurant industry as it will ease food costs.
Our Choices
Given this scenario, it would be prudent to invest in restaurant stocks. We have narrowed down our search to four stocks, namely The Cheesecake Factory Incorporated (CAKE - Free Report) , Brinker International, Inc. (EAT - Free Report) , Wingstop Inc. (WING - Free Report) and Texas Roadhouse, Inc. (TXRH - Free Report) .
The Cheesecake Factory Incorporated owned and operated 334 restaurants throughout the United States and Canada under brands, including The Cheesecake Factory and North Italia, Flower Child and a collection within the Fox Restaurant Concepts subsidiary. Internationally, CAKE operates 33 Cheesecake Factory restaurants under licensing agreements. It operates two bakery production facilities as well.
The Cheesecake Factory’s expected earnings growth rate for the current year is 17.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. CAKE currently has a Zacks Rank #2.
Brinker International, Inc. primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar and Maggiano’s Little Italy 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 the current year is 45.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. EAT presently carries a Zacks Rank #2.
Wingstop Inc. franchises and operates restaurants. WING operates through the Franchise segment and the Company segment. Wingstop offers cooked-to-order, hand-sauced and tossed chicken wings.
Wingstop’sexpected earnings growth rate for the current year is 39.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 60 days. WING currently sports a Zacks Rank #1.
Texas Roadhouse, Inc. is a full-service, casual dining restaurant chain, which offers assorted seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. TXRH operates restaurants under the Texas Roadhouse and Aspen Creek names. Texas Roadhouse also offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, an assortment of hamburgers, salads and sandwiches.
Texas Roadhouse’s expected earnings growth rate for the current year is 33.3%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. TXRH presently carries has a Zacks Rank #2.
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4 Solid Stocks to Invest in as Restaurant Sales Jump in June
The U.S. restaurant industry put up a great show in 2023 as it showed tremendous resilience in the face of rising food costs, inflation and higher wages. However, the industry is facing major challenges this year.
Inflation, which declined sharply in 2023, resumed its climb in the first few months of this year. Higher prices impacted sales as traffic waned. High wages and higher food costs have been two major concerns affecting margins.
However, the industry is trying to hold its ground. The Commerce Department said in its June retail sales report that sales at restaurants and bars jumped 0.3% sequentially and 4.4% from the year-ago levels.
The growth in restaurant sales is being driven by solid consumer spending as a result of a steady rise in personal income.
To overcome the challenges, restaurant owners are focusing more on digital innovations, adopting strategies to boost sales, and finding ways to cut costs. The rising impact of the Internet highlights the importance of digital innovation. Major restaurant chains are regularly teaming up with delivery services and digital platforms to increase their sales.
The industry is expected to benefit further once the Federal Reserve starts its easing cycle. The Fed said last month that it plans a single 25 basis point rate cut this year. This is much lower than the three rate cuts projected in March.
However, even a single 25 basis point rate cut is good news, especially since several market participants had expected no rate cuts this year.
Moreover, the latest FOMC "dot plot" indicates a projected total 1% reduction in interest rates by 2025, potentially taking the Fed funds rate to 4.1% by the end of next year. Lower interest rates bode well for the restaurant industry as it will ease food costs.
Our Choices
Given this scenario, it would be prudent to invest in restaurant stocks. We have narrowed down our search to four stocks, namely The Cheesecake Factory Incorporated (CAKE - Free Report) , Brinker International, Inc. (EAT - Free Report) , Wingstop Inc. (WING - Free Report) and Texas Roadhouse, Inc. (TXRH - Free Report) .
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). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Cheesecake Factory Incorporated owned and operated 334 restaurants throughout the United States and Canada under brands, including The Cheesecake Factory and North Italia, Flower Child and a collection within the Fox Restaurant Concepts subsidiary. Internationally, CAKE operates 33 Cheesecake Factory restaurants under licensing agreements. It operates two bakery production facilities as well.
The Cheesecake Factory’s expected earnings growth rate for the current year is 17.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. CAKE currently has a Zacks Rank #2.
Brinker International, Inc. primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar and Maggiano’s Little Italy 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 the current year is 45.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. EAT presently carries a Zacks Rank #2.
Wingstop Inc. franchises and operates restaurants. WING operates through the Franchise segment and the Company segment. Wingstop offers cooked-to-order, hand-sauced and tossed chicken wings.
Wingstop’sexpected earnings growth rate for the current year is 39.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 60 days. WING currently sports a Zacks Rank #1.
Texas Roadhouse, Inc. is a full-service, casual dining restaurant chain, which offers assorted seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. TXRH operates restaurants under the Texas Roadhouse and Aspen Creek names. Texas Roadhouse also offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, an assortment of hamburgers, salads and sandwiches.
Texas Roadhouse’s expected earnings growth rate for the current year is 33.3%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. TXRH presently carries has a Zacks Rank #2.