3 Restaurant Stocks Are Serving Up Strong Earnings
Estimize | Jun 30, 2016 12:48AM ET
The trends that once favored fast casual chains like Chipotle Mexican Grill Inc (NYSE:CMG) and Panera Bread Company (NASDAQ:PNRA) are slowly shifting back to the fast food and casual dining sector.
The shift has favored big names like McDonald’s Corporation (NYSE:MCD) and Darden Restaurants (NYSE:DRI) who have seen consistent growth after management changes in the past 2 years.
And for those not named Chipotle, fast casual operators haven’t had it all that bad. In fact, the new face of fast casual, Shake Shack (NYSE:SHAK), is coming off a superb first quarter that proved growth wasn’t decelerating as quickly as previously thought. As discretionary spending continues to increase this should drive the food industry to more fruitful earnings.
McDonald’s Corp (MCD ) Consumer Discretionary – Hotels, Restaurants and Leisure
The golden arches are an iconic piece of American history but that hasn’t reflected how the company has performed in the past 5 years. McDonald’s struggles came at a time when fast casual and healthy eating were the new craze. It wasn’t until McDonald’s appointed Steve Easterbrook in the middle of last year that the company began to show signs of life.
In the past 12 months, the stock is up 25% supported by earnings growth turning positive. Its resurgence has been largely driven by successful marketing campaigns and new value promotions. The McPick 2 and other limited time offerings have been key in boosting comparable store sales and customer traffic.
McDonald’s has also made it a point to improve the appearance of its stores through renovations, taking a page from the fast casual industry. Still, one analyst believes that this rebound will be short lived. Last week an analyst at Nomura downgraded the stock to neutral from buy, sending the stock tumbling.
The Estimize community has reacted negatively to the news, cutting estimates for the second quarter over the past few weeks. The consensus data is looking for earnings per share of $1.36 on $6.29 billion in revenue, reflecting a 10% increase on the bottom line and 3% decline on the top.
Shake Shack (SHAK ) Consumer Discretionary – Hotels, restaurants and Leisure
Following Chipotle’s health scares late last year, Shake Shack emerged as the clear face of the fast casual industry. With just over 100 locations worldwide, the burger chain garners an immense amount of media attention for its innovative and limited time offerings.
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The recent launch of the Chick’n Shack at all domestic locations was a key driver of traffic and comparable store sales last quarter. The report put an end to the argument that the company could not sustain its rapid growth. Reported earnings of 8 cents on 54 million in revenue exceeded both the Wall Street and Estimize consensus. Expectations are high for the second quarter.
The Estimize consensus is looking for earnings per share of 14 cents on $62.75 million in revenue, reflecting a 49% increase on the bottom line and 29% on the top. The stock typically makes large gains prior to a report but tends to turn negative after results are released. Shares are down nearly 45% in the past 12 months.
Darden Restaurants (DRI ) Consumer Discretionary – Hotels, restaurants and Leisure
Soup, Salad and Breadsticks aren’t only tasty for customers but investors as well. Darden Restaurants, which operates Olive Garden amongst other brands, has been on the rise over the past few years. After Starboard Value overthrew the company’s board and implemented its own people and processes, Darden has surged.
Shares are up nearly 10% from a year earlier, 7% on the year, supported by favorable comparisons. Earnings have maintained double digit gains and it’s only a matter of time before revenue reaches those growth rates. Early indications look as if Darden will be at it again with its fourth quarter results.
The Estimize consensus is looking for earnings per share of $1.09 on $1.82 billion in revenue, reflecting a 7% increase in earnings. Regardless if you prefer fast food, fast casual or casual dining, it appears as if the restaurant industry will be serving up strong earnings this earnings season.
How do you think these names will report this week?
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