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Rate Cuts to Help Restaurant Industry: 4 Stocks With Growth Potential
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The U.S. restaurant industry has shown great resilience amid rising price pressure. Sales grew consistently at restaurants and drinking places in 2023 and this year has also been great so far. The Federal Reserve’s recent rate cut is likely to benefit the restaurant industry further as it will help lower the cost of both raw materials as well as allow consumers to spend more freely.
Given this situation, it would be ideal to invest in restaurant stocks like Yum China Holdings, Inc. (YUMC - Free Report) , El Pollo Loco Holdings, Inc. (LOCO - Free Report) ,Texas Roadhouse, Inc. (TXRH - Free Report) and Potbelly Corporation (PBPB - Free Report) , which have upside potential for 2024 and have seen positive earnings estimate revisions in the past 60 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.
August Sales Prove Industry’s Underlying Strength
The Commerce Department reported earlier this month that sales at eating and drinking places totaled $94.5 billion in August 2024, up from $91.1 billion in July 2024. Year over year, sales at restaurants rose 2.7% in August.
Consumer enthusiasm for dining out continues to be strong. According to a National Restaurant Association survey, about 43% of millennials and Gen Xers, 42% of baby boomers, and 40% of Gen Z adults want more options for eating out.
Although rising prices have been a major challenge for restaurant owners and diners, sales have grown steadily. Higher personal income has been allowing consumers to spend more lavishly, boosting sales. Also, inflation has eased substantially over the past several months, easing price pressure.
Rate Cut to Help Restaurant Stocks
The much-anticipated rate cuts were announced by the Federal Reserve last week. The Fed announced a 50-basis point rate cut, bringing its benchmark policy rate in the range of 4.75-5%. This was the Fed’s first rate cut since March 2020 and its biggest since 2008.
Lower borrowing costs will substantially help both restaurant owners and consumers. Lower borrowing costs typically help boost consumer spending. Also, low interest rates will allow restaurant owners to go ahead with their expansion plans.
The Federal Reserve also believes that inflation is now on track to meet its 2% target. Moreover, market participants are hopeful about another 50-basis point rate cut by the end of this year, which will further help the restaurant industry.
4 Restaurants Stocks Poised to Grow
Yum China Holdings
Yum China Holdings operates both company-owned and franchised restaurants. YUMC’s brands include The KFC, Pizza Hut and Taco Bell. The company also owns East Dawning, Little Sheep and COFFii & JOY.
Yum China Holdings’ expected earnings growth rate for the current year is 11%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 90 days. YUMC currently has a Zacks Rank #2.
Image Source: Zacks Investment Research
El Pollo Loco Holdings
El Pollo Loco Holdings, through its subsidiary, develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. LOCO specializes in flame-grilled chicken in a variety of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads.
El Pollo Loco Holdings’ expected earnings growth rate for the current year is 12.7%. The Zacks Consensus Estimate for current-year earnings has improved 12.7% over the past 60 days. LOCO presently carries a Zacks Rank #2.
Image Source: Zacks Investment Research
Texas Roadhouse
Texas Roadhouse 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’s expected earnings growth rate for the current year is 39.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. TXRH presently sports a Zacks Rank #1.
Image Source: Zacks Investment Research
Potbelly
Potbelly is a neighborhood sandwich concept. PBPB manages establishments for consuming food on premises to offer sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies.
Potbelly’s expected earnings growth rate for the current year is 33.3%. The Zacks Consensus Estimate for current-year earnings has improved 17.6% over the past 60 days. PBPB currently carries a Zacks Rank #2.
Image Source: Zacks Investment Research
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Rate Cuts to Help Restaurant Industry: 4 Stocks With Growth Potential
The U.S. restaurant industry has shown great resilience amid rising price pressure. Sales grew consistently at restaurants and drinking places in 2023 and this year has also been great so far. The Federal Reserve’s recent rate cut is likely to benefit the restaurant industry further as it will help lower the cost of both raw materials as well as allow consumers to spend more freely.
Given this situation, it would be ideal to invest in restaurant stocks like Yum China Holdings, Inc. (YUMC - Free Report) , El Pollo Loco Holdings, Inc. (LOCO - Free Report) ,Texas Roadhouse, Inc. (TXRH - Free Report) and Potbelly Corporation (PBPB - Free Report) , which have upside potential for 2024 and have seen positive earnings estimate revisions in the past 60 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.
August Sales Prove Industry’s Underlying Strength
The Commerce Department reported earlier this month that sales at eating and drinking places totaled $94.5 billion in August 2024, up from $91.1 billion in July 2024. Year over year, sales at restaurants rose 2.7% in August.
Consumer enthusiasm for dining out continues to be strong. According to a National Restaurant Association survey, about 43% of millennials and Gen Xers, 42% of baby boomers, and 40% of Gen Z adults want more options for eating out.
Although rising prices have been a major challenge for restaurant owners and diners, sales have grown steadily. Higher personal income has been allowing consumers to spend more lavishly, boosting sales. Also, inflation has eased substantially over the past several months, easing price pressure.
Rate Cut to Help Restaurant Stocks
The much-anticipated rate cuts were announced by the Federal Reserve last week. The Fed announced a 50-basis point rate cut, bringing its benchmark policy rate in the range of 4.75-5%. This was the Fed’s first rate cut since March 2020 and its biggest since 2008.
Lower borrowing costs will substantially help both restaurant owners and consumers. Lower borrowing costs typically help boost consumer spending. Also, low interest rates will allow restaurant owners to go ahead with their expansion plans.
The Federal Reserve also believes that inflation is now on track to meet its 2% target. Moreover, market participants are hopeful about another 50-basis point rate cut by the end of this year, which will further help the restaurant industry.
4 Restaurants Stocks Poised to Grow
Yum China Holdings
Yum China Holdings operates both company-owned and franchised restaurants. YUMC’s brands include The KFC, Pizza Hut and Taco Bell. The company also owns East Dawning, Little Sheep and COFFii & JOY.
Yum China Holdings’ expected earnings growth rate for the current year is 11%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 90 days. YUMC currently has a Zacks Rank #2.
Image Source: Zacks Investment Research
El Pollo Loco Holdings
El Pollo Loco Holdings, through its subsidiary, develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. LOCO specializes in flame-grilled chicken in a variety of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads.
El Pollo Loco Holdings’ expected earnings growth rate for the current year is 12.7%. The Zacks Consensus Estimate for current-year earnings has improved 12.7% over the past 60 days. LOCO presently carries a Zacks Rank #2.
Image Source: Zacks Investment Research
Texas Roadhouse
Texas Roadhouse 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’s expected earnings growth rate for the current year is 39.2%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. TXRH presently sports a Zacks Rank #1.
Image Source: Zacks Investment Research
Potbelly
Potbelly is a neighborhood sandwich concept. PBPB manages establishments for consuming food on premises to offer sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies.
Potbelly’s expected earnings growth rate for the current year is 33.3%. The Zacks Consensus Estimate for current-year earnings has improved 17.6% over the past 60 days. PBPB currently carries a Zacks Rank #2.
Image Source: Zacks Investment Research