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4 Restaurant Stocks to Serve Up a Beat This Earnings Season
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The U.S. restaurant industry witnessed robust growth in 2018 and the top-line momentum is anticipated to continue in 2019. Per TDn2K’s The Restaurant Industry Snapshot, the overall fourth quarter has been satisfactory, with comps growth of 1.4%, the highest since 2015. Guest check in the quarter grew 3.1% year over year, offsetting the negative impact of traffic erosion. Same-store traffic declined 1.6% in the fourth quarter.
Comps grew 2% in December, marking the seventh consecutive month of positive sales growth. December also witnessed the highest monthly same-store sales growth in three years. In 2018, comps grew 0.7%.
Restaurant Industry Looks Up Despite Concerns
Even though comps growth has been encouraging in the fourth quarter, the restaurant industry is plagued with declining traffic. Persistent erosion in traffic compared with comps growth indicates that it is only guest checks and not guest counts that contributed to restaurant sales. This also means that consumers are not frequently visiting restaurants and are getting increasingly reliant on delivery services instead.
Moreover, restaurant giants are plagued by high cost of operations. Further, sales-building efforts such as promotional activities and a convincing pricing strategy are detrimental to margins. Apart from this, competition, high wage and food cost inflation remain concerns.
However, the industry has been gaining from increased consumer spending and restaurateurs’ focus on digital innovation. The fourth quarter has borne fruits of increased consumer spending, steady rise in wages and lower unemployment. Also, most of the restaurant operators have been continuously partnering with delivery channels and digital platforms to drive incremental sales.
Q4 Expectations
Notably, half of the Zacks broad sectors (8 out of 16) are expected to report double-digit growth in the fourth quarter of 2018. Restaurants in the wider Retail Wholesale sector seem to have a solid footing as well. TheEarnings Preview shows 18.7% rise in the sector’s fourth-quarter earnings compared with 26.1% growth in the last reported quarter. Revenues in the quarter under review are expected to rise 4.9% (lower than the third quarter’s 6.4%). Margins in the quarter are anticipated to increase 0.6% compared with the prior quarter’s increase of 0.8%.
How to Pick the Right Stocks?
Amid a wide number of restaurant stocks, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings.
While there is no foolproof method to pick outperformers, our proprietary methodology — the combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — helps in identifying stocks that have high chances of surprising in their upcoming earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Key Picks
Here are some restaurateurs set to report fourth-quarter 2018 earnings that might interest investors.
Chipotle Mexican Grill, Inc. (CMG - Free Report) is slated to release fourth-quarter numbers on Feb 6. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +1.54%. The Zacks Consensus Estimate for earnings is pegged at $1.34, flat year over year. The company topped earnings estimates in each of the trailing four quarters, the average beat being 12.8%.
YUM! Brands, Inc. (YUM - Free Report) , a fast-casual restaurant company, is scheduled to report results on Feb 7. With a Zacks Rank #3 and an Earnings ESP of +2.01%, the company is likely to beat estimates in the to-be-reported quarter. In fact, it beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 22.1%. For the fourth quarter, the consensus estimate is pegged at 97 cents, indicating 1% year-over-year increase.
BJ's Restaurants, Inc. (BJRI - Free Report) has a Zacks Rank #3 and an Earnings ESP of +2.08%, suggesting that the company is likely to beat estimates this time around. The restaurant, which is anticipated to report quarterly numbers on Feb 28, surpassed estimates in each of the trailing four quarters, the average beat being 33.2%. The Zacks Consensus Estimate for earnings in the quarter to be reported is pegged at 48 cents, indicating a 29.7% year-over-year increase.
El Pollo Loco Holdings, Inc. (LOCO - Free Report) , which is a quick-service restaurant chain, is expected to report quarterly results on Mar 14. The company currently carries a Zacks Rank #2 and has an Earnings ESP of +7.14%. It suggests that a beat is likely in the to-be-reported quarter. El Pollo Loco surpassed estimates in each of the trailing four quarters, the average beat being 5.5%. For the quarter to be reported, earnings estimates are pegged at 14 cents, projecting 27.3% growth from the year-ago quarter.
El Pollo Loco Holdings, Inc. Price and EPS Surprise
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
Image: Bigstock
4 Restaurant Stocks to Serve Up a Beat This Earnings Season
The U.S. restaurant industry witnessed robust growth in 2018 and the top-line momentum is anticipated to continue in 2019. Per TDn2K’s The Restaurant Industry Snapshot, the overall fourth quarter has been satisfactory, with comps growth of 1.4%, the highest since 2015. Guest check in the quarter grew 3.1% year over year, offsetting the negative impact of traffic erosion. Same-store traffic declined 1.6% in the fourth quarter.
Comps grew 2% in December, marking the seventh consecutive month of positive sales growth. December also witnessed the highest monthly same-store sales growth in three years. In 2018, comps grew 0.7%.
Restaurant Industry Looks Up Despite Concerns
Even though comps growth has been encouraging in the fourth quarter, the restaurant industry is plagued with declining traffic. Persistent erosion in traffic compared with comps growth indicates that it is only guest checks and not guest counts that contributed to restaurant sales. This also means that consumers are not frequently visiting restaurants and are getting increasingly reliant on delivery services instead.
Moreover, restaurant giants are plagued by high cost of operations. Further, sales-building efforts such as promotional activities and a convincing pricing strategy are detrimental to margins. Apart from this, competition, high wage and food cost inflation remain concerns.
However, the industry has been gaining from increased consumer spending and restaurateurs’ focus on digital innovation. The fourth quarter has borne fruits of increased consumer spending, steady rise in wages and lower unemployment. Also, most of the restaurant operators have been continuously partnering with delivery channels and digital platforms to drive incremental sales.
Q4 Expectations
Notably, half of the Zacks broad sectors (8 out of 16) are expected to report double-digit growth in the fourth quarter of 2018. Restaurants in the wider Retail Wholesale sector seem to have a solid footing as well. TheEarnings Preview shows 18.7% rise in the sector’s fourth-quarter earnings compared with 26.1% growth in the last reported quarter. Revenues in the quarter under review are expected to rise 4.9% (lower than the third quarter’s 6.4%). Margins in the quarter are anticipated to increase 0.6% compared with the prior quarter’s increase of 0.8%.
How to Pick the Right Stocks?
Amid a wide number of restaurant stocks, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver better-than-expected earnings.
While there is no foolproof method to pick outperformers, our proprietary methodology — the combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — helps in identifying stocks that have high chances of surprising in their upcoming earnings announcement. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Key Picks
Here are some restaurateurs set to report fourth-quarter 2018 earnings that might interest investors.
Chipotle Mexican Grill, Inc. (CMG - Free Report) is slated to release fourth-quarter numbers on Feb 6. The company currently carries a Zacks Rank #3 and has an Earnings ESP of +1.54%. The Zacks Consensus Estimate for earnings is pegged at $1.34, flat year over year. The company topped earnings estimates in each of the trailing four quarters, the average beat being 12.8%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Chipotle Mexican Grill, Inc. Price and EPS Surprise
Chipotle Mexican Grill, Inc. Price and EPS Surprise | Chipotle Mexican Grill, Inc. Quote
YUM! Brands, Inc. (YUM - Free Report) , a fast-casual restaurant company, is scheduled to report results on Feb 7. With a Zacks Rank #3 and an Earnings ESP of +2.01%, the company is likely to beat estimates in the to-be-reported quarter. In fact, it beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 22.1%. For the fourth quarter, the consensus estimate is pegged at 97 cents, indicating 1% year-over-year increase.
Yum! Brands, Inc. Price and EPS Surprise
Yum! Brands, Inc. Price and EPS Surprise | Yum! Brands, Inc. Quote
BJ's Restaurants, Inc. (BJRI - Free Report) has a Zacks Rank #3 and an Earnings ESP of +2.08%, suggesting that the company is likely to beat estimates this time around. The restaurant, which is anticipated to report quarterly numbers on Feb 28, surpassed estimates in each of the trailing four quarters, the average beat being 33.2%. The Zacks Consensus Estimate for earnings in the quarter to be reported is pegged at 48 cents, indicating a 29.7% year-over-year increase.
BJ's Restaurants, Inc. Price and EPS Surprise
BJ's Restaurants, Inc. Price and EPS Surprise | BJ's Restaurants, Inc. Quote
El Pollo Loco Holdings, Inc. (LOCO - Free Report) , which is a quick-service restaurant chain, is expected to report quarterly results on Mar 14. The company currently carries a Zacks Rank #2 and has an Earnings ESP of +7.14%. It suggests that a beat is likely in the to-be-reported quarter. El Pollo Loco surpassed estimates in each of the trailing four quarters, the average beat being 5.5%. For the quarter to be reported, earnings estimates are pegged at 14 cents, projecting 27.3% growth from the year-ago quarter.
El Pollo Loco Holdings, Inc. Price and EPS Surprise
El Pollo Loco Holdings, Inc. Price and EPS Surprise | El Pollo Loco Holdings, Inc. Quote
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
See Stocks Today >>