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3 Restaurants Stocks Crushing the S&P 500 Despite Inflation Woes

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There’s no denying the fact that market conditions have been unfavorable for investors so far in 2022. Of late, most industries are reeling under the pressure of high inflation and the restaurant industry is no exception. Intense competition, high wages and food cost inflation have taken a toll on companies. These concerns have been affecting margins of late.

The rise in meat and seafood costs, including ribs, prime rib, ribeye and tri-tip, and salmon, is hurting the industry. The restaurant industry has also been facing declining traffic for quite some time now. Inflation has aggravated the scenario. High inflation leads to higher menu prices, which, in turn, have been hurting traffic.

Despite the aforementioned concerns the industry sales are gradually improving. The industry body, the National Restaurant Association (NRA), forecasts restaurant and bars industry sales to reach $898 billion in 2022. The improvement can be attributed to the enhancement in fundamentals such as modifications in business processes, staffing, floor plans and technology.

Restaurant operators’ focus on digital innovation, sales-building initiatives and cost-saving efforts has been acting as a catalyst. With the growing influence of the Internet, digital innovation has become the need of the hour. Restaurant operators are constantly partnering with delivery channels and digital platforms to drive incremental sales.

Despite increasing sales, high costs have been hurting the industry’s performance. However, stocks like Chipotle Mexican Grill, Inc. (CMG - Free Report) , Wingstop Inc. (WING - Free Report) and Noodles & Company (NDLS - Free Report) have outperformed the industry and the S&P 500 in the past three months.

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3 Restaurant Stocks Worth a Bet

Chipotle: The company has been benefitting from its digital efforts, Chipotlane add-ons and marketing initiatives. These, along with strength in digital sales, rise in menu prices, new restaurant openings and higher restaurant-level operating margins, have been aiding the company.

In the past three months, the company’s shares have gained 16.9% against the industry and the S&P 500’s decline of 0.4% and 5.1%, respectively. This Zacks Rank #2 (Buy) company has an estimated long-term earnings growth rate of 23.3%. In the past 30 days, earnings estimates for 2022 and 2023 have witnessed upward revisions of 0.2% and 0.8%, respectively.

Wingstop: The company is benefiting from robust system-wide sales, royalty revenues and franchise fees. New restaurant openings are also aiding the company. Since Jun 26, 2021, the company has opened 229 net franchise restaurants.

In the past three months, the company’s shares have gained 39.5%. This Zacks Rank #1 (Strong Buy) company has an estimated long-term earnings growth rate of 11%. The company’s earnings in 2022 and 2023 are likely to witness growth of 16.3% and 17.4%, respectively. You can see the complete list of today's Zacks #1 Rank stocks here.

Noodles & Company: The company continues to gain from the streamlining of menu and innovation, effective marketing strategy and increased focus on the off-premise business. An increase in digital sales continues to favor the company.

In the past three months, the company’s shares have gained 6.8%. This Zacks Rank #2 company has an estimated long-term earnings growth rate of 10%. The company’s earnings in 2023 are likely to grow 1,600% year over year.

See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

Chipotle Mexican Grill, Inc. (CMG) - free report >>

Noodles & Company (NDLS) - free report >>

Wingstop Inc. (WING) - free report >>

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