Restaurant stocks are reporting first-quarter earnings.
Restaurant investors are bracing for a challenging first-quarter earnings season after companies hinted at weak traffic trends in January and February. However, Stifel analyst Chris O’Cull says recent industry data suggests the restaurant business picked up toward the end of the quarter, and a handful of top restaurant stocks may have no problem exceeding depressed earnings expectations. An impressive earnings season could get these laggards back on track, while an earnings miss could turn up the bearish heat. Here’s an overview of which restaurant stocks the Stifel analyst team likes and which ones it doesn’t.
McDonald’s Corp. (NYSE: MCD)
O’Cull says market sentiment for McDonald’s has gotten ahead of the company’s fundamentals at the moment. O’Cull says it’s unclear how much traction the revamped McDonald’s value menu gained during the quarter and how much of an impact it may have had on competitors. Stifel is calling for same-store sales growth of around 3 percent in the first quarter. Stifel has a “hold” rating and $165 price target for MCD stock. The company is expected to report earnings on April 30 before the market open. Stifel is expecting EPS of $1.69, ahead of consensus analyst estimates of $1.67.
Chuy’s Holdings (CHUY)
O’Cull expects strong performance from the Texas market, which represents nearly 40 percent of Chuy’s restaurants. With the stock up roughly 7 percent since its last earnings report and same-restaurant sales likely to decline by 1 percent in the first quarter, O’Cull says upside for the stock may be limited. Stifel has a “hold” rating and $26 price target for CHUY stock. The company is expected to report earnings on May 3 after the market close. Stifel is expecting EPS of 23 cents, ahead of consensus analyst estimates of 22 cents.
Domino’s Pizza (DPZ)
O’Cull says Domino’s Pizza is a top performer in the restaurant space, but high expectations for the first quarter may keep the stock in check. Recent survey results suggest third-party delivery services are not threatening Domino’s business, and O’Cull expects Domino’s to report same-restaurant sales growth of at least 5.5 percent. Stifel has a “buy” rating and $255 price target for DPZ stock. The company is expected to report earnings on April 26 before the market open. Stifel is expecting EPS of $1.69, below consensus analyst estimates of $1.77.
Starbucks Corp. (SBUX)
Starbucks has struggled to meet North American sales targets, and the company has suggested that its quarter got off to a slow start. O’Cull says guidance will be key, and there will be upside for the stock only if Starbucks guides for at least 3 percent same-restaurant sales growth in the second half of the year. Stifel has a “hold” rating and $58 price target for SBUX stock. The company is expected to report earnings on April 26 after the market close. Stifel is expecting EPS of 52 cents, below consensus analyst estimates of 53 cents.
Yum Brands (YUM)
O’Cull says Yum Brands is facing some difficult comparisons in China in the first quarter after a strong Chinese New Year performance in 2017. However, Taco Bell’s nacho fries were a huge success in the quarter. O’Cull is still bullish on the stock and says Yum should grow EPS by 15 percent annually in the long term. Stifel has a “buy” rating and $94 price target for YUM stock. The company is expected to report earnings on May 2 before the market open. Stifel is expecting EPS of 67 cents, below consensus analyst estimates of 69 cents.
Texas Roadhouse (TXRH)
O’Cull says the Texas Roadhouse sales momentum will likely continue in 2018, and Stifel is calling for 4.5 percent same-restaurant sales growth in the first quarter. The stock is pricey, but O’Cull says top-tier sales growth warrants a premium valuation. Texas Roadhouse should also benefit from regional strength in its large Texas and Florida markets. Stifel has a “buy” rating and $68 price target for TXRH stock. The company is expected to report earnings on April 30 after the market close. Stifel is expecting EPS of 75 cents, below consensus analyst estimates of 76 cents.
Wendy’s Co. (WEN)
Stifel is expecting Wendy’s to report 1.8 percent same-restaurant sales growth in the first quarter, short of the company’s guidance of 2 to 2.5 percent growth. Still, O’Cull says the company’s aggressive advertising, savvy social media campaigns and “4 for $4” promotion have performed well up against the new McDonald’s value menu. Better weather in the second quarter could help boost numbers. Stifel has a “buy” rating and $20 price target for WEN stock. The company is expected to report earnings on May 8 after the market close. Stifel is expecting EPS of 10 cents, in line with consensus estimates.
Brinker International (EAT)
O’Cull says Chili’s faced another difficult quarter in terms of traffic. But with a forward price-to-earnings ratio of only 10.5, O’Cull says Brinker International stock is one of the cheapest stocks in the restaurant space and makes for an attractive contrarian play. Stifel estimates Chili’s same-restaurant sales declined by 2 percent or more in the first quarter, but the downside is limited. Stifel has a “hold” rating and $38 price target for EAT stock. The company is expected to report earnings on April 24 before the market open. Stifel is expecting EPS of $1.04, in line with consensus estimates.
Wingstop (WING)
Wingstop likely benefited from a number of tailwinds in the first quarter, including lower chicken prices, an increase in higher-margin online sales and an uptick in national advertising. In addition, Texas and California markets were strong, two regions that account for 53 percent of Wingstop’s sales. Unfortunately, with the stock already up 30 percent in 2018, O’Cull sees limited near-term upside. Stifel has a “buy” rating and $56 price target for WING stock. The company is expected to report earnings on May 3 after the market close. Stifel is expecting EPS of 20 cents, in line with consensus estimates.
Red Robin Gourmet Burger (RRGB)
O’Cull says off-premise sales and value promotions have accelerated Red Robin’s same-restaurant sales growth in recent quarters, a trend that likely continued in the first quarter. Stifel is calling for same-restaurant sales growth of 1 percent, ahead of consensus estimates of 0.4 percent growth. Labor cost savings may have also boosted first-quarter earnings. Stifel has a “hold” rating and $65 price target for RRGB stock. The company is expected to report earnings on May 15 after the market close. Stifel is expecting EPS of 80 cents, above consensus analyst estimates of 74 cents.
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10 Restaurant Stocks to Watch This Earnings Season originally appeared on usnews.com
