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4 Stocks to Make the Most of a Rebounding Restaurant Industry

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Another month down and the light at the end of the tunnel looks even brighter as the restaurant industry continues to ride on the off-premise business model and improved consumer spending.

With a large number of Americans being inoculated, the idea of providing off-premise offerings, along with a connected curbside service, still holds strong. Also, the fact that restaurant operators have resorted to menu rationalization, enhanced operating procedures and IT upgrades makes it an initiative placed in the right direction.

Going by the purview, much of the optimism can be anticipated as the restaurant industry reported robust sales figures for May 2021.

Restaurant Sales Up in May

According to preliminary data from the U.S. Census Bureau, the restaurant & bars industry registered total sales of $67.3 billion (on a seasonally-adjusted basis) compared with the previous month’s $64.9 billion. It was encouraging to note that the sales figure improved 3.7% sequentially and 1.7% from the February 2020 levels. Nonetheless, this was the fourth solid increase in total sales in the last five months.

Notably, resilience is being witnessed on account of enhancement in fundamentals, such as modifications in business processes, staffing, floor plans, and technology. Also, much of emphasis is being given to the off-premise business model as companies are investing heavily in digital initiatives to improve reliability and customer services. Moreover, motivations with respect to venturing out on account of the legislation-approved indoor dining and ramped-up vaccinations have been aiding the industry.

We believe the restaurant industry’s recovery from the pandemic is not yet complete, as much of the upside potential continues in terms of customer traffic reaching the pre-pandemic levels. Furthermore, it is important to note that the restaurant operators are well positioned to meet customers’ expectations (post-pandemic) through targeted strategic and meaningful improvements across the business.

Nonetheless, investing in the retail sector might sound profitable right now. It is worth noting that the Zacks Retail – Restaurants industry is currently at the top 38% (with the rank of 97) of the 252 Zacks industries, which hints at further growth.

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 rally higher in 2021. With the help of the Zacks Stock Screener, we have zeroed in stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies have witnessed a sharp price appreciation in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Chuy's Holdings, Inc. (CHUY - Free Report) is a fast-growing, full-service restaurant concept offering a distinct menu of authentic, Mexican food. Shares of this Zacks Rank #1 company have surged 33.7% in the past six months compared with the industry’s 7.5% gain. Notably, the company has been gaining from its focus on cost management and operating efficiencies. In addition, its initiative toward pay at the table solutions, such as QR code payment and other tech solutions, are encouraging. Meanwhile, the Zacks Consensus Estimate for 2021 earnings has been revised upward by 31.9% in the past 60 days, indicating an improvement of 77.4% year over year.

Texas Roadhouse, Inc. (TXRH - Free Report) is a growing restaurant company operating predominately in the casual dining segment. Shares of this Zacks Rank #1 company have gained 12.5% in the past six months, courtesy of significant sales acceleration and profitability improvement owing to the easing of dining-room capacity restrictions. To this end, solid performance is being registered at its Bubba’s and Jaggers location. The company is optimistic on account of its expansion initiatives and the Butcher Shop business for growth for the days to come. Meanwhile, the Zacks Consensus Estimate for the ongoing-year earnings has moved up 35.3% over the past 60 days, suggesting an increase of a whopping 666.7%, year on 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 appreciated 29.5% in the past six months, courtesy of its operational adjustments. The company remains focused on restaurant development and expansion for the upcoming period. It intends to open two to three new company-owned restaurants by the end of this year, including Short Hills, New Jersey. Also, foundational technological investments are likely for better management of operations. Meanwhile, the Zacks Consensus Estimate for the current-year earnings has moved north by 77.6% in 60 days’ time, calling for an astounding year-over-year improvement of 371.1%.

Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) owns and operates a chain of full-service restaurants in the United States and Canada. Shares of this Zacks Rank #2 company have rallied 53.2% in the past six months. Notably, the company benefits from streamlining of application process and technology enhancements. Furthermore, the company continues to focus on its virtual brands as it intends to unveil new menu items without additional operational complexities. Meanwhile, the Zacks Consensus Estimate for 2021 earnings has been revised upward by 92% in the past 60 days, indicating a significant improvement of 98.9%, year over year.

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