U.S. restaurants sales have returned to the pre-pandemic level. The latest estimates from the U.S. Census Bureau have shown that monthly sales of food services and drinking places amounted to $86.1 billion in July, remained almost flat with June and increased nearly 12% year over year.

Consequently, investment in restaurant stocks with a favorable Zacks Rank should be prudent. Four such stocks are — Arcos Dorados Holdings Inc. (ARCO Quick QuoteARCO - Free Report) , Potbelly Corp. (PBPB Quick QuotePBPB - Free Report) , Ruth's Hospitality Group Inc. , Cracker Barrel Old Country Store Inc. (CBRL Quick QuoteCBRL - Free Report) and First Watch Restaurant Group Inc. (FWRG Quick QuoteFWRG - Free Report) .

Impressive Turnaround by U.S. Restaurants

The U.S. restaurant industry is showing signs of an impressive turnaround in 2022 after two pandemic-ridden years. This industry received major jolts during the coronavirus outbreak due to lockdowns and other restrictive norms to maintain social distancing.

However, the massive implementation of COVID-19 vaccines by the U.S. government in 2021 and the complete reopening of the economy gave a major boost to the restaurant and bar industry.

Restaurant operators’ focus on digital innovation, its sales building initiatives and cost- saving efforts have been acting as 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 gradually witnessing improving sales. Per the industry body, the National Restaurant Association (NRA), restaurant and bars industry sales are forecast to reach $898 billion in 2022. The improvement can be attributed to the enhancement in fundamentals such as modifications in business processes, staffing, floor plans and technology.

The industry participants are hiring indicating that the industry is finally coming out of the woods. The NRA has projected that the industry will recruit 400,000 manpower, taking its total employment to 14.9 million at the end of 2022.

The restaurant industry is consistently gaining from the spike in off-premise sales, which primarily includes delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks, owing to the coronavirus pandemic. Per the NRA, 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 the rest of 2022. These stocks have seen positive earnings estimate revision in the last 60 days. Each of our picks carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks in the past three months.

Image Source: Zacks Investment Research

Potbelly owns, operates, and franchises Potbelly sandwich shops. PBPB manages establishments for consuming food on premises to offers sandwiches, salads, soups, chili, chips, cookies, ice cream, and smoothies. Potbelly serves customers throughout the United States.

Potbelly has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 60 days.

Arcos Dorados operates as a franchisee of McDonald's with its operations divided in Brazil, 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.

Arcos Dorados has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 11.4% over the last 60 days.

Ruth's Hospitality Group is the largest fine dining steakhouse company in the United States as measured by the total number of company-owned and franchisee-owned restaurants.

RUTH develops, operates, and franchises fine-dining restaurants under the Ruth's Chris Steak House name. Ruth's Hospitality Group’s restaurants offer food and beverage products to special occasion diners and frequent customers, as well as business clients.

RUTH has an expected earnings growth rate of 24.8% for the current year. The Zacks Consensus Estimate for the current year has improved 8.1% over the last 60 days.

Cracker Barrel Old Country Store is engaged in the ownership and operation of full-service restaurants with a restaurant and a retail store in the same unit. The restaurants serve home-style country food, including meatloaf, homemade chicken n' dumplings as well as its signature biscuits using an old family recipe.

The retail stores offer unique gifts and self-indulgences. CBRL operates through two brands of restaurants – “Cracker Barrel Old Country Store” and “Holler & Dash Biscuit House”. Cracker Barrel Old Country Store also owns fast-casual Holler and Dash restaurants.

CBRL has an expected earnings growth rate of 2.2% for the current year (July 2023). The Zacks Consensus Estimate for the current year has improved 1.5% over the last 60 days.

First Watch Restaurant Group is a daytime dining restaurant concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. FWRG offers pancakes, omelets, sandwiches and salads, alongside specialty items like the Quinoa Power Bowl, Avocado Toast and the Chickichanga.

FWRG has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 25% over the last 7 days.