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Higher Sales Spur Restaurant Hiring: 4 Solid Stocks to Buy

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More than 30 million Americans are collecting jobless benefits every week, on average. Last week was the 19th on the trot when initial claims totaled at least 1 million. It was also the second consecutive week in which initial claims rose after declining for 15 straight weeks. However, one sector is gradually gathering steam and has started hiring once again despite the pandemic.

Restaurants and cafes in the United States are swimming against the tide and are hiring again as states start reopening and businesses get back to operation. Needless to say, this surge in hiring hints at growing demand for restaurant and cafe products.

Restaurants on Hiring Spree

The number of Americans who filed new claims for unemployment benefits last week totaled 1.434 million, the Labor Department reported. Continuing claims, which are composed of those receiving unemployment benefits for at least two straight weeks, increased by 867,000 to 17.2 million for the week ending Jul 18. This reflects how businesses continue to suffer even after the reopening of economies.

Surprisingly, the restaurant industry is in good shape despite the battering it took in the March and April. On Aug 3, Chipotle Mexican Grill, Inc. (CMG - Free Report) announced that it will hire another 10,000 employees in the coming months as its sales rebound.

The fast-casual brand, known for its Mexican-inspired bowls and burritos, has already added 8,000 of the 10,000 employees it targeted in its last major hiring spree in May after states started easing restrictions. Dunkin Brands Group Inc (DNKN - Free Report) plans to hire 25,000 new restaurant employees, from front counter staff to managers. Last week, Papa John’s International, Inc. (PZZA - Free Report) said it will hire 10,000 more workers as it tries to meet surging demand for pizzas.

Higher Sales Drive Hiring 

The massive hiring across restaurants over the past couple of months is primarily driven by higher sales. Restaurant and food service sales totaled $47.4 billion in June, marking the second straight month of growth after sales hit a low of $30 million in April, according to the National Restaurant Association (NRA). Total restaurant sales in May were $39.5 billion. The jump in June comes after a dismal March and April, when restaurants missed out on an expected $116 billion in total sales due to the coronavirus-induced lockdown.

Roughly 50% of the 12.3 million restaurant and bar workers employed in February lost their jobs in March and April, making the industry one of the hardest hit by the pandemic. However, things started changing with states reopening and, according, to the Labor Department, hotels and restaurants rehired 763,000 workers in May.

Moreover, as the economy is to be closed again due to rising COVID-19 case and jobless rolls are growing, other major restaurants are also witnessing a surge in sales. This could leave them with the need to hire more cooks, managers and cashiers.

Our Choices

Given this scenario, restaurant stocks should appear rather appealing to investors. We have shortlisted five stocks with a Zacks Rank #1 (Strong Buy) and Zacks Rank 2 (Buy) that are likely to bring sumptuous returns in the coming days.You can see the complete list of today’s Zacks #1 Rank stocks here.

Dominos Pizza Inc (DPZ - Free Report) , through its subsidiaries, operates as a pizza delivery company in the United States and internationally, with over 15,900 locations in more than 85 markets.

The company’s expected earnings growth rate for the current year is 31%. The Zacks Consensus Estimate for current-year earnings has improved 12% over the past 60 days.  Dominos Pizza sports a Zacks Rank #1.

Papa John’s International, Inc. operates and franchises pizza delivery and carryout restaurants in the United States and other specific international markets. The company’s dine-in and delivery restaurants operate under the brand name Papa John’s.

The company’s expected earnings growth rate for the current year is 8.6%. The Zacks Consensus Estimate for current-year earnings has improved 7.6% over the past 60 days. Papa John’scarries a Zacks Rank #2.

Jack In The Box Inc. (JACK - Free Report) is a restaurant company that operates and franchises through Jack In The Box quick-service restaurants, and is one of the nation’s largest hamburger chains. On the basis of number of restaurants, the company’s top 10 markets comprise nearly 70% of the total system.

The company’s expected earnings growth rate for next year is 23.3%. The Zacks Consensus Estimate for current-year earnings has improved 6.8% over the past 60 days. Jack In The Boxcarries a Zacks Rank #2.

El Pollo Loco Holdings, Inc. (LOCO - Free Report) through its subsidiary, develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. The restaurants specialize in flame-grilled chicken in a variety of contemporary Mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads. 

The company’s expected earnings growth rate for next year is 66.7%. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 60 days. El Pollo Locoholds a Zacks Rank #2.

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