JP Morgan analyst John Ivankoe advises savvy investors to be picky when looking for good bets in the fast-food sector.
Ivankoe said industry sales in the fast-food sector have improved in recent months, nearly doubling from a 3% rise in July to a 5.8% rise in September. It also has become pricier for people to eat at home than it was pre-pandemic, as food inflation has weighed more heavily on grocery stores than restaurants in the past few months, Barron’s explained.
Ivankoe says chains have also recovered more quickly than independent restaurants. The fast-food industry has “demonstrated its mettle in 2020, [with] most operators now seeing increased profits year over year as sales recovery has been matched with operational simplification,” he writes.
However, he warns that “many operators do not see a path to profitability at 25% of indoor capacity.”
His overweight-rated stocks include Bloomin’ Brands (BLMN), and McDonald’s (MCD).
Ivankoe likes Dunkin’ Brands Group (DNKN). He also rates Wendy’s (WEN) a buy.
“McDonald’s is a favorite on the Street, boosted by the recent success of its celebrity collaborations. Analysts have also noted Wendy’s menu innovations and its expansion into breakfast. In addition, Dunkin’s drive-throughs have been a standout during the pandemic, which some other analysts argue give it a competitive edge,” Barron’s said.
However, new restaurants continued to open this year at a relatively fast pace despite the pandemic, data released this week show.
The rate of recent openings is ahead of 2018, 2017 and 2016, according to data compiled by Yelp Inc., which books online restaurant reservations and posts business reviews, Bloomberg reported.
In September, there were only 100 fewer new restaurant openings nationwide compared with a year earlier, Yelp said. Moreover, new restaurant openings last quarter were only down 10% compared to the third quarter of 2019.
After a sharp drop in April, restaurants started rebounding with a 29% monthly increase of new openings from May to July, Yelp said. August and September were relatively flat -- but more than 6,000 new restaurants still opened each of those months, according to the report.
In addition to restaurants, more seafood and farmers’ markets as well as food trucks launched this year, Yelp said.
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