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Barron's: 8 Cheap Restaurant Stocks That Are Worth the Risk

Barron's: 8 Cheap Restaurant Stocks That Are Worth the Risk
(Andranik Hakobyan/Dreamstime)

By    |   Friday, 21 August 2020 01:13 PM

Some savvy investors may think the only more risky that eating out during a pandemic is chowing down on shares in restaurant companies,

However, Barron's experts recently cleared the kitch table, rolled up their sleeves and crunched the numbers to try and find the restaurant stocks that are trading cheaply despite their ability to hold up well amid the continuing threat of COVID-19. The financial publication scoured FactSet data on same-store sales, analyst expectations, market caps above $1 billion and trading-EPS factors.

"Of course, analyst estimates are always subject to change, and the outlook for restaurants remains especially murky, given that outbreaks of COVID-19 have led to reopening rollbacks, increased dining restrictions, and a general hesitance to eat out for some," the financial publication explained.

"Moreover, many companies have yanked their guidance. Yet the restaurants that have held up best in the past year, and are expected to keep attracting diners, may be in for less pain than others. Buying them cheaply helps further mitigate the risk," Barron's said.

Barron's offered eight picks:

  • Bloomin’ Brands (BLMN) and Jack in the Box (JACK). "Jack was one of the early fast-food winners when the U.S. first started to reopen this spring. Analysts see Bloomin’ Brands’ same-store sales rising just over 19% in 2021, and project a 2.5% gain for Jack," Barron's said.
  • Dunkin’ Brands Group (DNKN) and Yum Brands (YUM). Dunkin’s drive-throughs have at least helped offset the pain of slow breakfast demand, and analysts are looking for comps to climb nearly 9% next year. Traffic at all three of Yum’s banner brands (KFC, Pizza Hut, and Taco Bell) was down. Yet consensus estimates call for comps to be up more than 9% next year.
  • Texas Roadhouse (TXRH) and Starbucks (SBUX). Both are among the top companies for expected 2021 comp growth, at 17.9% and 20.8%. "Texas Roadhouse stock gained after reporting a better-than-expected second-quarter earlier this month. Starbucks, like Dunkin’, has struggled with the sluggish recovery in breakfast, but the company’s most recent earnings report was better than feared," the publication reported.
  • Cracker Barrel Old Country Store (CBRL) and McDonald’s (MCD). McDonald’s, the largest restaurant by market cap, "was the best performer in the group in terms of same-store sales in its latest fiscal year, and its stock saw the second-highest 2020 gains of the group," Barron's said. Cracker Barrel’s expected increase in comps in 2021, at 20.8%, is tied with Starbucks (SBUX) as the highest of the group. Analysts expect McDonald’s same-store sales to rise 13.4%. Analysts expect McDonald’s same-store sales to rise 13.4%.

Meanwhile, Americans made tentative moves back to restaurants over the past week, hiring advanced across a sample of industries and a rise in job postings suggested it may continue, signs the U.S. recovery grinds along, albeit not without some setbacks.

Retail spending appeared to hold up. Data published by reservation site Opentable on seated diners at restaurants was at or better than 50% of the year-ago level Friday through Sunday, the first such three-day stretch since mid-March and a stark contrast to the full collapse of restaurant dining in April, Reuters reported.

Data on retail foot traffic from cellphone tracking firm Unacast showed visits to restaurants last weekend hit 2019 levels in about half of states for the first time since late July, with a similar return to beauty salons and barbershops.

However, not all news about the restaurant industry is appetizing.

A recent industry forecast reportedly projects that one in three U.S. restaurants may close permanently this year, showing how the COVID-19 pandemic is decimating an industry that employs millions of Americans.

As many as 231,000 of the nation’s roughly 660,000 eateries will likely shut down this year, according to an estimate from restaurant consultancy Aaron Allen & Associates provided to Bloomberg News.

This will bring the industry’s steady growth to a halt and mark the first time in two decades that U.S. restaurant counts don’t climb. Restaurants have already shed millions of jobs this year, economic data show.

In addition, Aaron Allen & Associates calculates that more than 8,000 restaurants in the U.S. have already been directly affected by an employee with coronavirus.

© 2021 Newsmax Finance. All rights reserved.

In an industry so starved for growth during the coronavirus pandemic economic shutdown, many of the standouts have already garnered plenty of attention—and their stock valuations show it.
cheap, restaurant, stocks, risk
Friday, 21 August 2020 01:13 PM
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