Is The GOP's Tax Plan Lifting Restaurant Stocks?
Zacks Investment Research | Dec 04, 2017 04:02AM ET
Shares of several restaurant chains—including Chipotle Mexican Grill (NYSE:CMG) , Shake Shack (NYSE:SHAK) , and Yum! Brands (NYSE:YUM) —surged on Monday as investors began to dive into companies and industries that stand to benefit from a potential GOP tax plan.
Both the Senate and House versions of the GOP tax plan call for the corporate tax rate to be cut from 35% to 20%. This massive reduction could lead to greater profits at almost every U.S. company.
The U.S. Senate passed a before Christmas .
Now, after the Senate’s 51-49 vote across party lines—with just one Republican voting against it—the GOP’s plan to cut roughly $1.4 trillion in taxes has once again spurred market movement.
Last week, Chipotle stock popped after the fast-casual burrito chain announced it would begin a search for a new CEO. On Monday, shares of Chipotle climbed over 5.5% as investors began to take into account how a new U.S. tax code could help bolster the Colorado-based chain’s bottom line.
Investors jumped on Chipotle stock after the weekend Senate vote because the company currently pays one of the highest effective tax rates, according to a Credit Suisse (SIX:CSGN) report . This has many Chipotle investors cautiously optimistic about the possibility that a GOP tax overhaul could help raise the struggling company’s profits.
Smaller companies with a lot of U.S. sales tend to pay higher effective tax rates than much bigger multinational firms.
Investors began to buy shares of companies throughout the U.S. restaurant industry with the hopes that a Republican tax plan—if passed—could help boost profits. On top of that, a decreased tax burden could lead to further investments and strategic business initiatives amid the quickly shifting food industry landscape.
Shares of domestic burger chain Shake Shack Inc. climbed over 2.55% to hit a new 52-week high. Yum! Brands, which owns KFC, Taco Bell, and others, also saw its stock price touch a new high on Monday.
The Wendy's Company (NASDAQ:WEN) shares surged 3.78%, while shares of Domino's Pizza (NYSE:DPZ) and Jack in the Box Inc. (NASDAQ:JACK) both jumped by around 1.75%.
Shares of U.S. coffee powerhouse Dunkin' Brands Group, Inc. (NASDAQ:DNKN) also rose more than 3% to hit a new 52-week high. Fellow domestic and international coffee giant, Starbucks Corporation (NASDAQ:SBUX) , saw its stock price climb over 3%.
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