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4 Restaurant Stocks to Buy Amid Industry Headwinds

The retail sector is under tremendous pressure, with sales slowing. Higher prices have compelled people to cut down on spending. However, U.S. restaurants are still putting up a great show amid the ongoing pricing challenge and other industry headwinds.

Although higher prices are affecting sales, an increasing number of people are still eating out, with consumers’ desire for the restaurant experience remaining as the industry continues to make a steady recovery from the pandemic lows. Given this situation, stocks Portillo's Inc. PTLO, Darden Restaurants, Inc. DRI, Chuy's Holdings, Inc. CHUY and Jack in the Box Inc. JACK are likely to benefit in the near term.

Restaurant Sales Rebounding

According to the National Restaurant Association (NRA), the restaurant industry is bouncing back to normal at a fast pace. Per the latest report, around three out of every four restaurants have said that business is getting back to normal, as the focus is on sustaining growth in the near term.

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The restaurant industry started on an impressive note in 2022 but higher prices and the Fed’s aggressive rate hike policy to tame surging inflation saw sales slowing at the end of the year. Higher prices have also made the menu expensive at restaurants.

However, people are willing to spend more on eating out, which is driving sales. The headwinds of 2022 have been carried over into this year, but sales are still on the rise. According to the NRA, 92% of the operators claim that higher costs of food are a major issue for them.

However, competition is heating up, which is making operators are focusing on digital innovations, trying to boost sales and implement cost-cutting measures. This is also helping the industry’s steady recovery.

According to the Mastercard SpendingPulse, restaurant sales jumped 11.6% year over year in March, which significantly helped boost overall retail sales.

Restaurant Industry Poised to Grow

The restaurant industry has been trying to bounce back from the pandemic lows since the beginning of 2022. Sales were hampered in 2020 and 2021 as a result of the COVID-19 outbreak and the subsequent reemergence of mutant variants that reduced social interaction.

The restaurant industry suffered as a result of that. However, the recovery didn't start until the COVID-induced lockdown was lifted and the economy reopened.

Additionally, people frequently spend more money on services than on goods. This changed during the epidemic, with customers spending more on goods than services.

Finally, things are back to normal, and customers have started shelling out more on services. Restaurants are the only service category included in retail sales data.

Understandably, restaurant operators are giving their best to fight back against the ongoing challenges. On the brighter side, people are spending more on eating out as their desire for the restaurant experience remains strong.

The NRA, in its report, mentioned that 84% of people prefer going out with their families and friends to restaurants than cooking at home. Also, the report says that the food service industry is projected to reach $997 billion in sales this year, while workforce is expected to grow another 50,000, taking the overall industry’s employment to 15.5 million by the end of 2023.

Our Choices

Given this situation, it would be ideal to invest in these four restaurant stocks.

Portillo's Inc. provides a fast-casual restaurant concept known for its menu of Chicago-style favorites. PTLO is based in Chicago.

Portillo's expected earnings growth rate for the current year is 44%. The Zacks Consensus Estimate for current-year earnings has improved 33.3% over the past 90 days. PTLO currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Darden Restaurants, Inc. is one of the largest casual dining restaurant operators worldwide. DRI has operations in the United States and Canada with more than 1,700 restaurants.

Darden Restaurants’ expected earnings growth rate for the current year is 7.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 90 days. DRI currently has a Zacks Rank #2 (Buy).

Chuy's Holdings, Inc. owns and operates full-service restaurants serving a distinct menu of authentic Mexican food. CHUY offers a menu, which includes appetizers, soups and salads, tacos, burritos, enchiladas, fajitas and combination platters. Headquartered in Austin, TX, Chuy's Holdings operates chains throughout Texas, Alabama, Indiana, Kentucky, and Tennessee.

Chuy's Holdings’ expected earnings growth rate for the current year is 19%. The Zacks Consensus Estimate for current-year earnings has improved 3.8% over the past 90 days. CHUY presently carries a Zacks Rank #2.

Jack in the Box Inc. is a restaurant company that operates and franchises through Jack in the Box quick-service restaurants, and is one of the nation’s largest hamburger chains. On the basis of the number of restaurants, JACK’s top 10 markets comprise nearly 70% of the total system. Jack in the Box is also the second largest QSR hamburger chain in nine of those 10 markets.

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Darden Restaurants, Inc. (DRI) : Free Stock Analysis Report

Chuy's Holdings, Inc. (CHUY) : Free Stock Analysis Report

Portillo's Inc. (PTLO) : Free Stock Analysis Report

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