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4 Restaurant Stocks to Play a Likely Turnaround in 2021

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The coronavirus pandemic has rattled the restaurant industry on a global scale. Although restaurant operators have adopted strategies to combat the same, frequent surges in COVID-19 cases are acting as a roadblock.

Due to this, companies are witnessing operating limitations, store re-closures and further delays in reopening stores. Also, decline in traffic on account of the social-distancing protocols has been hampering business. Dine-in restaurant operators were primarily impacted by the pandemic. Notably, the Zacks Retail – Restaurants industry is currently in the bottom 32% (Zacks Industry Rank #174) out of 255 Zacks industries.

However, with necessary changes in business model along with streamlining of corporate overheads, the industry on a whole has shown some resilience. This along with the much-awaited coronavirus vaccine, the rollout of which has begun, is likely to aid restaurant operators in 2021.

Nonetheless, it is worth mentioning that the Zacks Retail – Restaurants industry has outperformed the S&P 500 index over the past six months. Notably, the industry has grown 24.5% in the past six months compared with the S&P 500’s rally of 20.6%.

 

 

Innovation & Digitalization Need of the Hour

Owing to the pandemic, restaurant operators are continuously coming up with new ideas to keep their businesses afloat. This includes expansion of seating capacity at both indoor dining rooms and outdoor seating (which includes extension of patios, all weather-tents and igloos) in keeping with social-distancing protocols. To this end, partitions are being installed in dining rooms to safely optimize and expand indoor seating. Also, companies have been opting for heaters and breathable panel set-ups to enhance the outdoor seating area.

In the current scenario, companies are still counting on off-premise business to drive sales. In order to support this model, companies have resorted to menu rationalization, enhanced operating procedures and made IT upgrades. Also, collaborations with third-party delivery channels like DoorDash, Grubhub, Postmates and Uber Eats are benefitting.

Notably, the combination of re-engineering order and delivery process is likely to boost sales in the upcoming periods. Moreover, restaurant operators are focusing on driverless delivery systems to augment sales. This is expected to bring down expenses substantially and ensure safety amid the pandemic.

Moreover, companies have increased their focus on digital innovation, mobile ordering and loyalty programs. Also, features like online food tracking, touchscreen ordering, LED menu boards and frictionless payment options, in terms of drive-thru technology, are being worked upon.

Although restaurant operators are witnessing dismal comps compared with the pre-pandemic levels, they are still banking on the COVID-19 vaccine availability. Notably, vaccinations will reinforce confidence in customers to go to an outlet and grab a bite. Also, it will minimize risks of front-line workers associated with this industry.

Meanwhile, Pfizer (PFE - Free Report) , Moderna (MRNA - Free Report) and AstraZeneca (AZN - Free Report) announced the effectiveness of their vaccines. Per reports, the federal government is planning to distribute 7.9 million doses of the vaccines developed by Pfizer-BioNTech and Moderna in the week starting Dec 21.

Here, we have highlighted four stocks that are likely to witness earnings growth in 2021 buoyed by robust sales-building initiatives.

4 Restaurant Stocks to Watch Out For

Given the backdrop, here are four restaurant stocks that are likely to move higher in 2021. With the help of the Zacks Stock Screener, we have zeroed in stocks which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies have witnessed a sharp rise in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 27.5% in the past six months, courtesy of a robust delivery system. Given the high demand for this service, the company has tied up with 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. The Zacks Consensus Estimate for its 2021 earnings has been revised 13.4% upward in the past 60 days. The Zacks Consensus Estimate for its fiscal 2021 earnings indicates an improvement of 20.2% year over year.

Ruth's Hospitality Group, Inc. (RUTH - Free Report) along with its subsidiaries, develops, operates and franchises fine dining restaurants under the Ruth's Chris Steak House name in the United States. Shares of this Zacks Rank #2 company have gained 103.4% in the past six months, courtesy of its operational adjustments. The Zacks Consensus Estimate for its 2021 earnings has been revised 18.4% upward in the past 60 days. The Zacks Consensus Estimate for its 2021 earnings indicates an improvement of 264.6% year over year.

FAT Brands Inc. (FAT - Free Report) is a multi-brand restaurant franchising company that develops, markets, and acquires predominantly fast casual restaurant concepts around the world. Shares of this Zacks Rank #2 company have surged 124.5% in the past six months. Notably, the company has been benefitting from phased reopening across the country and solid to-go delivery sales. Meanwhile, the company has seen no changes when it comes to estimate revision over the past few weeks and the Zacks Consensus Estimate for its current-quarter earnings also remained unchanged. The Zacks Consensus Estimate for its 2021 earnings indicates an improvement of 127% year over year.

The ONE Group Hospitality, Inc. (STKS - Free Report) develops, owns and operates, manages and licenses upscale, high-energy restaurants and lounges. It also provides food and beverage services for hospitality venues including hotels, casinos and other high-end locations. Shares of this Zacks Rank #2 company have surged 74.9% in the past six months. Notably, the company has been benefitting from new menus, launch of a revived bar and timing program, and aggressive and sustained marketing activities. The Zacks Consensus Estimate for its 2021 earnings has been revised 20% upward in the past 60 days. The Zacks Consensus Estimate for its 2021 earnings indicates an improvement of 79% year over year.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.

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