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4 Restaurant Stocks in Good Shape Despite the COVID-19 Pandemic

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The coronavirus pandemic has pushed restaurant owners to become creative to keep their businesses afloat. Majority of the restaurant operators are looking for ways to attract customers, while adhering to social distancing protocols. Some operators have resorted to expansion of outdoor dining with heaters and breathable panel set-ups.

With focus on the off-premise business model, new restaurant management structure, menu reductions, renegotiation of leases and the streamlining of corporate overheads, the industry as a whole is showing resilience.

Increased Focus on Outdoor Seating Expansion

Since the onset of the coronavirus pandemic, social distancing protocols have negatively impacted traffic in the global restaurant industry. In order to ease the situation, restaurant operators are enhancing outdoor dining experience. Notably, this includes extension of patios, all weather-tents and igloos. Also, the companies are investing heavily on heaters and breathable panels for outdoor dining spaces to counter the cold weather. Notably, the installations have already become common in places like California, Texas, Florida, Arizona and Nevada.

Going forward, the above measures along with marketing initiatives (that includes TV messages that highlight dine-in and off-premise experience) are likely to boost customer traffic.

Off-Premise Business Model: A Driving Factor

Restaurant operators continue to focus on the off-premise business model to drive growth amid the pandemic. In order to support this model, the companies have resorted to menu rationalization, enhanced operating procedures, IT upgrades and improved ordering capability. Also, collaborations with third-party delivery channels like DoorDash, Grubhub, Postmates and Uber Eats are encouraging.

Markedly, the process of re-engineering order and delivery process as well as the in-built technology for no-contact delivery is likely to augment sales and ensure safety amid the pandemic. Also, features like online food tracking, touchscreen ordering, LED menu boards and frictionless payment options, in terms of drive-thru technology, are positives.

Owing to the actions and perseverance of the companies, it is worth noting that Retail – Restaurants industry is currently in the top 48% (Zacks Industry Rank #121) out of 254 Zacks industries.

4 Solid Picks

With the help of the Zacks Stock Screener, we have zeroed in on four restaurants stocks, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies are also ahead of others in the digital game and have witnessed a sharp rise in the past three to six months. You can see the complete list of today’s Zacks #1 Rank stocks here.



 

Brinker International, Inc. (EAT - Free Report) is engaged in the ownership and operation of full-service restaurants. Shares of this Zacks Rank #1 company have gained 71.5% in the past six months compared with the industry’s 13% growth.

Notably, the company is steadfast in its goal to drive traffic and revenues through a range of sales-building initiatives including streamlining of menu, innovation, strengthening its value proposition, better food presentation, advertising campaigns, kitchen system optimization and introduction of better service platform. Also, earnings estimates for 2021 have moved up 0.7% in the past 30 days. This indicates analysts’ optimism regarding the stock’s growth potential.

Darden Restaurants, Inc. (DRI - Free Report) together with its subsidiaries operates casual dining restaurants worldwide. Shares of this Zacks Rank #2 company have gained 38.6% in the past six months.

Notably, the company is benefiting from its focus on sales-building initiatives and technology-driven moves. These include simplifying kitchen systems, improving sales planning and scheduling, achieving operational excellence to improve guest experience, developing new core menu items, allowing customization and making smarter promotional investments. Meanwhile, earnings estimates for 2021 have moved up 0.5% in the past 60 days, depicting analysts’ optimism regarding the stock’s growth potential.

Jack in the Box Inc. (JACK - Free Report) is a restaurant company that operates and franchises through Jack in the Box quick-service restaurants. Shares of this Zacks Rank #2 company have gained 25.9% in the past six months, courtesy of a robust delivery system. The Zacks Consensus Estimate for its 2021 earnings has been revised 13.8% upward in the past 60 days.

Jack in the Box is also focusing on delivery channels, which is a growing area for the industry. Given the high demand for this service, the company has undertaken third-party delivery channels to bolster transactions and sales. It is also expanding its mobile application in a few markets that support order-ahead functionality and payment.

Fiesta Restaurant Group, Inc. (FRGI - Free Report) is engaged in the ownership and operation of quick-casual restaurant chains. Shares of this Zacks Rank #2 company have gained 42.7% in the past six months. Notably, the company is benefiting from drive-thrus as well as counter, curbside pickup, delivery and online ordering. Also, it continues to make progress in its digital platform and restaurant infrastructure to enhance customer experience. The Zacks Consensus Estimate for its 2020 earnings has been revised 14.3% upward in the past 60 days, depicting analysts’ optimism regarding the stock’s growth potential.

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