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Forget Cheesecake, Buy These 4 Restaurant Stocks Instead
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Calabasas Hills, CA-based The Cheesecake Factory Inc.’s (CAKE - Free Report) first quarter results were disappointing with the company missing both top- and bottom-line estimates. Same store sales also lagged expectations. Moreover, the company lowered its earnings outlook for the year based on a modest tempering of its top-line expectations with the anticipated improvement in the consumer environment yet to make an impact (Read more: Cheesecake Factory Down on Q1 Earnings Miss, View Cut.
Over the last 7 days, the company has witnessed downward revisions in earnings estimates -- while 2017 EPS estimate is down 1.3%, 2018 EPS estimate is down 1.5%. The company, which operates in the upscale casual dining segment, has underperformed the Zacks categorized Retail-Food & Restaurants industry year-to-date (YTD) with the shares gaining 4.1% compared to the industry gain of 9.3%. The company’s shares were down 6.7% immediately after the release of 1Q results.
With The Cheesecake Factory being a Zacks Rank #4 (Sell) stock, we advise investors to avoid the stock and focus on other names in the sector. Although the overall restaurant industry is facing a challenging environment given rising labor costs, declining traffic, continued margin pressure and higher non-discretionary spending, The National Restaurant Association expects restaurant-industry sales to grow about 4.3% to $798.7 billion in 2017. YTD, the sector has performed better than the S&P 500 which is up 7.3% during this period.
While it may seem like a daunting task to select winning stocks in this sector, we have zeroed in on four stocks with the help of the Zacks Stock Screener. These stocks not only sport a favorable Zacks Rank -- #1 (Strong Buy) or #2 (Buy), they also have a VGM Score of “A” or “B”. Our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or #2 offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Diversified Restaurant Holdings, Inc. : Southfield, MI-based Diversified Restaurant is the largest franchisee for Buffalo Wild Wings Grill & Bar with 64 franchised restaurants in key markets in Florida, Illinois, Indiana, Michigan and Missouri. The company’s earnings track record shows that it surpassed estimates in two of the last four quarters while results were in-line in the remaining two quarters. The average earnings surprise over the last four quarters is 45.83%. YTD, Diversified Restaurant has outperformed the Zacks categorized Retail-Food & Restaurants industry with shares gaining 112.9%. The Zacks Rank #1 stock has a VGM score of “A”.
Darden Restaurants, Inc. (DRI - Free Report) : Orlando, FL-based Darden Restaurants owns and operates full-service dining restaurants in the U.S. and Canada under the trade names Olive Garden, LongHorn Steakhouse, The Capital Grille, Yard House, Bahama Breeze, Seasons 52, and Eddie V's Prime Seafood and Wildfish Seafood Grille. The company has a positive earnings track record having surpassed expectations in each of the last four quarters with an average surprise of 3.35%. Earnings estimates for fiscal 2017 and fiscal 2018 are up 1.5% and 1.2%, respectively, over the last 60 days. The upcoming acquisition of Cheddar’s Scratch Kitchen is expected to boost fiscal 2018 earnings by 12 cents per share. In addition to being a Zacks Rank #2 stock, Darden has a VGM score of “B”. YTD, Darden’s shares are up 20.5%, outperforming the Zacks categorized Retail-Food & Restaurants industry.
Yum China Holdings, Inc. (YUMC - Free Report) : Yum China is a licensee of Yum! Brands in mainland China. The company has exclusive rights in mainland China to KFC, Pizza Hut, and Taco Bell, which opened its first restaurant in China at the end of 2016. The Little Sheep and East Dawning concepts are owned outright by Yum China. The Zacks Rank #2 stock surpassed earnings expectations in the last two quarters with an average surprise of 30.3%. YTD, YUMC has outperformed the Zacks categorized Retail-Food & Restaurants industry with shares gaining 33.2%. The company has a VGM Score of “B”.
Ruth's Hospitality Group, Inc. : Winter Park, FL-based Ruth's Hospitality is the largest fine dining steakhouse company in the U.S. as measured by the total number of company-owned and franchisee-owned restaurants. The Zacks Rank #2 stock has surpassed earnings expectations in three of the last four quarters with an average surprise of 4.07%. The company, which has a VGM Score of “A”, has performed better than the Zacks categorized Retail-Food & Restaurants industry with shares up 15.6%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>>
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Forget Cheesecake, Buy These 4 Restaurant Stocks Instead
Calabasas Hills, CA-based The Cheesecake Factory Inc.’s (CAKE - Free Report) first quarter results were disappointing with the company missing both top- and bottom-line estimates. Same store sales also lagged expectations. Moreover, the company lowered its earnings outlook for the year based on a modest tempering of its top-line expectations with the anticipated improvement in the consumer environment yet to make an impact (Read more: Cheesecake Factory Down on Q1 Earnings Miss, View Cut.
Over the last 7 days, the company has witnessed downward revisions in earnings estimates -- while 2017 EPS estimate is down 1.3%, 2018 EPS estimate is down 1.5%. The company, which operates in the upscale casual dining segment, has underperformed the Zacks categorized Retail-Food & Restaurants industry year-to-date (YTD) with the shares gaining 4.1% compared to the industry gain of 9.3%. The company’s shares were down 6.7% immediately after the release of 1Q results.
With The Cheesecake Factory being a Zacks Rank #4 (Sell) stock, we advise investors to avoid the stock and focus on other names in the sector. Although the overall restaurant industry is facing a challenging environment given rising labor costs, declining traffic, continued margin pressure and higher non-discretionary spending, The National Restaurant Association expects restaurant-industry sales to grow about 4.3% to $798.7 billion in 2017. YTD, the sector has performed better than the S&P 500 which is up 7.3% during this period.
While it may seem like a daunting task to select winning stocks in this sector, we have zeroed in on four stocks with the help of the Zacks Stock Screener. These stocks not only sport a favorable Zacks Rank -- #1 (Strong Buy) or #2 (Buy), they also have a VGM Score of “A” or “B”. Our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or #2 offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Diversified Restaurant Holdings, Inc. : Southfield, MI-based Diversified Restaurant is the largest franchisee for Buffalo Wild Wings Grill & Bar with 64 franchised restaurants in key markets in Florida, Illinois, Indiana, Michigan and Missouri. The company’s earnings track record shows that it surpassed estimates in two of the last four quarters while results were in-line in the remaining two quarters. The average earnings surprise over the last four quarters is 45.83%. YTD, Diversified Restaurant has outperformed the Zacks categorized Retail-Food & Restaurants industry with shares gaining 112.9%. The Zacks Rank #1 stock has a VGM score of “A”.
Darden Restaurants, Inc. (DRI - Free Report) : Orlando, FL-based Darden Restaurants owns and operates full-service dining restaurants in the U.S. and Canada under the trade names Olive Garden, LongHorn Steakhouse, The Capital Grille, Yard House, Bahama Breeze, Seasons 52, and Eddie V's Prime Seafood and Wildfish Seafood Grille. The company has a positive earnings track record having surpassed expectations in each of the last four quarters with an average surprise of 3.35%. Earnings estimates for fiscal 2017 and fiscal 2018 are up 1.5% and 1.2%, respectively, over the last 60 days. The upcoming acquisition of Cheddar’s Scratch Kitchen is expected to boost fiscal 2018 earnings by 12 cents per share. In addition to being a Zacks Rank #2 stock, Darden has a VGM score of “B”. YTD, Darden’s shares are up 20.5%, outperforming the Zacks categorized Retail-Food & Restaurants industry.
Yum China Holdings, Inc. (YUMC - Free Report) : Yum China is a licensee of Yum! Brands in mainland China. The company has exclusive rights in mainland China to KFC, Pizza Hut, and Taco Bell, which opened its first restaurant in China at the end of 2016. The Little Sheep and East Dawning concepts are owned outright by Yum China. The Zacks Rank #2 stock surpassed earnings expectations in the last two quarters with an average surprise of 30.3%. YTD, YUMC has outperformed the Zacks categorized Retail-Food & Restaurants industry with shares gaining 33.2%. The company has a VGM Score of “B”.
Ruth's Hospitality Group, Inc. : Winter Park, FL-based Ruth's Hospitality is the largest fine dining steakhouse company in the U.S. as measured by the total number of company-owned and franchisee-owned restaurants. The Zacks Rank #2 stock has surpassed earnings expectations in three of the last four quarters with an average surprise of 4.07%. The company, which has a VGM Score of “A”, has performed better than the Zacks categorized Retail-Food & Restaurants industry with shares up 15.6%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>>