The U.S. restaurant industry has grown at a solid pace over the past couple of years even though prices posed a major challenge for both consumers and operators. Higher personal income and spending have been the major factors driving sales amid inflationary pressures.
Last week, the Commerce Department reported that restaurant sales grew at a solid pace in October, and is on track to end the year on a high.
Given the positive outlook, investing in restaurant stocks, such as CAVA Group, Inc. CAVA, Dutch Bros Inc. BROS, Shake Shack Inc. SHAK, Brinker International, Inc. EAT and Kura Sushi USA, Inc. KRUS will be a prudent choice. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Restaurant Sales Grow in October
The Commerce Department said last week that sales at U.S. bars and restaurants totaled $97.3 billion in October, up 0.3% month over month, after increasing 1.2% in September. On a year-over-year basis, sales at restaurants grew 4.2% in October.
For the 10 months through October, sales totaled $495.4 billion. Sales have grown faster than the rise in food inflation. According to the Labor Department, the consumer price index for food away from home rose 3.8% year over year in October, which suggests that only part of the rise in sales can be attributed to higher prices on the menu.
Inflation posed a major challenge over the past couple of years and is still above the Federal Reserve’s 2% target. However, sales growth surpassed price increases during the entire phase of high inflation. Monthly sales at restaurants have jumped 41% since February 2020, the pre-pandemic era.
Restaurant Stocks to Benefit
Rising prices have posed challenges for restaurant owners as cost-conscious customers prioritize value for money. Quick-service restaurants, especially those focused on affordability, have managed to stay strong in this tough market.
As budget-conscious diners seek economical dining options, competition in the value-driven segment has grown significantly. To attract and retain customers, brands are ramping up their promotions and rolling out money-saving deals.
Industry stakeholders are benefiting from steady demand for budget-friendly offerings and competitive pricing strategies. Many restaurants are leveraging promotional efforts, forming strategic partnerships, and launching new products to maintain customer interest.
According to the National Restaurant Association, sales at U.S. restaurants are projected to surpass $1.1 trillion in 2024. The Federal Reserve cut interest rates by 75 basis points since September after inflation declined sharply over the past year. With price pressures subsiding, the restaurant industry is poised to gain in the near future, as reduced borrowing rates are expected to benefit both restaurant owners and customers.
5 Restaurant Stocks With Upside
CAVA Group, Inc.
CAVA Group, Inc. is a category-defining Mediterranean fast-casual restaurant brand, which brings heart, health and humanity to food. CAVA is based in Washington.
CAVA Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 16.3% over the past 60 days. CAVA currently has a Zacks Rank #2.
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Dutch Bros Inc.
Dutch Bros Inc. is an operator and franchisor of drive-thru shops that focus on serving high-quality, hand-crafted beverages with unparalleled speed and superior service.
Dutch Bros’ expected earnings growth rate for the current year is 50%. The Zacks Consensus Estimate for current-year earnings has improved 15.4% over the past 60 days. BROS presently carries a Zacks Rank #2.
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Shake Shack Inc.
Shake Shack Inc. restaurants operate in the United States and internationally. SHAK operates and grants licenses for Shake Shack restaurants, commonly known as Shacks. Here, Shake Shackpresents a menu featuring burgers, chicken, hot dogs, crinkle-cut fries, shakes, frozen custard, beer, wine and additional offerings.
Shake Shack’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 12.3% over the past 60 days. SHAK currently has a Zacks Rank #2.
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Brinker International, Inc.
Brinker International, Inc. primarily owns, operates, develops and franchises various restaurants under the Chili’s Grill & Bar and Maggiano’s Little Italy brands. EAT took over Chili’s, Inc., a Texas corporation, in September 1983 and completed the acquisition of Maggiano’s in August 1995. Chili’s is a preeminent leader in the bar & grill category of casual dining. The brand has been functioning for over the last 40 years.
Brinker International’s expected earnings growth rate for the current year is 34.6%. The Zacks Consensus Estimate for current-year earnings has improved 19% over the past 60 days. EAT currently sports a Zacks Rank #1.
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Kura Sushi USA, Inc.
Kura Sushi USA, Inc. operates as a restaurant. KRUS offers nigiri, roll, hand roll, gunkan and desserts. Kura Sushi USA Inc. is based in Irvine.
Kura Sushi USA’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Currently, KRUS carries a Zacks Rank #1.
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