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5 Restaurant Stocks That Could Keep Winning Big in 2019

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After surviving the seven-quarter comps slump, the U.S. restaurant industry made a comeback in the fourth quarter of 2017. Ever since, the industry has been showing slow yet steady recovery. In fact, except for a slight dip in May, the industry reported positive comps in every month since March 2018.

According to TDn2K’s The Restaurant Industry Snapshot, growth has been strong for the industry so far this year and the top-line momentum is likely to continue in 2019. Comps grew 1.1% in the month of November, marking the sixth consecutive month of positive sales growth.

Although traffic has been a concern, the industry’s top line is supported by strong growth in to-go and other forms of off-premise sales. So far this year, to-go sales grew 9% year over year.

Notably, year to date, shares of the Zacks Retail – Restaurants industry have rallied 8.1%, outperforming the sector’s growth of 3.7%.  Meanwhile, the S&P 500’s saw a decline of 0.8%.


Will the Momentum Continue in 2019?

Per an article by Foodservice, the industry is likely to hit $825 billion in 2018, representing 4% year-over-year growth. The coming year is also likely to witness sales recovery in the industry, per Joel Naroff, TDn2K economist and president of Naroff Economic Advisors.

Notably, the industry’s growth is expected to be supported by increased consumer spending and restaurateurs’ focus on digital innovation. According to an article by Restaurant Business, the fast-casual restaurant space is likely to record sales growth of 8.3% in 2019 versus 8% this year. Casual dining is expected to experience a 3.4% gain in sales next year, up from this year’s 3.2%. Fine-dining restaurants will also see a 5.2% rise, compared with 5% growth forecast for 2018.

Factors Likely to Support Growth

The primary growth of restaurateurs in 2019 is likely to stem from a growing clout of digital and delivery sales. With the ever-growing presence of Internet and smartphones, analysts expect 25% of all restaurant sales to be generated from digital ordering and delivery over the next four years, per a report by Forbes.

Also, a tectonic shift has been witnessed in consumer behavior with online shopping being preferred over traditional brick-and-mortar stores. This has persuaded restaurant operators to adapt to the changing tide as evident from Starbucks’ (SBUX - Free Report) efforts in digital, card, loyalty and mobile capabilities.

Subsequently, G2 Crowd Learning Hub expects restaurants to increase mobile POS systems and ordering kiosks by at least 30% in 2019. Also, 40% of restaurants are likely to start accepting mobile payments by 2019.

Also, the overall economic scenario is conducive for growth of restaurant stocks. U.S. consumer confidence surged to its highest in 18 years in the month of October, per the Conference Board. Consumer confidence index climbed to 137.9 in October from 135.3 in September. Although the index slightly declined to 135.7 in November, consumer confidence is expected to remain strong in the months ahead.

Picking the Right Stocks

With the help of the Zacks Stock Screener, we have zeroed in on five restaurants stocks, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies, with market cap more than $100 million, are also ahead of others in the digital game and have outperformed the S&P 500. You can see the complete list of today’s Zacks #1 Rank stocks here.

McDonald's Corporation (MCD - Free Report) , a leading fast-food chain, carries a Zacks Rank #2. The company has been undertaking digital initiatives to better serve customers, with nearly all of its U.S. restaurants now using digital menu boards. The Zacks Consensus Estimate for current-year earnings is pegged at $7.76, reflecting year-over-year increase of 16.5%. For 2019, earnings are expected to increase 6.7% year over year. Year to date, the company’s shares have gained 8.3%, outperforming the S&P 500.

Darden Restaurants, Inc. (DRI - Free Report) , a Zacks Rank #2 company, banks on various sales-bolstering initiatives and cost-saving efforts to drive growth. Earnings for fiscal 2019 are expected to grow 17.3% year over year, per the Zacks Consensus Estimate. Darden’s shares have gained 8.5% so far this year.


BJ's Restaurants, Inc. (BJRI - Free Report) owns and operates a chain of 200 high-end casual dining restaurants in the United States. The company is investing heavily in technology-driven initiatives, like digital ordering, to boost sales. The consensus estimate calls for current-year earnings of $2.35, reflecting growth of 66.7% from the year-ago level. For 2019, the consensus estimate predicts earnings growth of 3.2% year over year. BJ’s Restaurants carries a Zacks Rank #2 and its year-to-date shares have gained 49.8%, massively outperforming the S&P 500 composite.

Dunkin' Brands Group, Inc. is a franchisor of quick service restaurants under the Dunkin' and Baskin-Robbins brands. The company is growing in terms of its usage of digital technology through DD card, DD mobile app, DD Perks rewards program, On-the-Go ordering and delivery.

Dunkin’ Brands carries a Zacks Rank #2. The company is expected to witness earnings growth of 16.9% in 2018 and 5% in 2019 when compared on a year-over-year basis. Shares of Dunkin’ Brands have gained 9.8% so far this year, outperforming the S&P 500 composites’ rally.

El Pollo Loco Holdings, Inc. (LOCO - Free Report) , Zacks Rank #2 company, is a fast-casual Mexican restaurant. Per the Zacks Consensus Estimate, the company’s earnings for 2018 and 2019 will grow 14.3% and 8.3%, respectively. Year to date, the company’s shares have gained 55.9%, outperforming the S&P 500.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>

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