8 Fast Food Stocks Gobbling Up Market Share

These restaurant stocks buck a trend.

The restaurant group has been a minefield for investors in 2018 with traffic numbers in most casual dining restaurants on the decline. According to QSR Magazine, third-quarter restaurant sales are down 1.2 percent from two years ago. In that same time, restaurant traffic is down 5.7 percent. Traffic declines are a legitimate concern for restaurant investors, but some companies are faring better than others. KeyBanc analyst Eric Gonzalez says a handful of fast food stocks are picking up the slack in the restaurant industry. Here are eight fast food stocks on KeyBanc’s radar.

Bojangles (ticker: BOJA)

If restaurant stocks have underperformed in 2018, you certainly wouldn’t know it by looking at Bojangles. The southeastern fried chicken chain has gained 39 percent year-to-date, and Gonzalez says the company’s loyal customer base and track record of quality will likely keep the stock trending in the right direction in the long term. While the company’s focus on value promotions and core offerings has worked in recent quarters, Gonzalez says Bojangles will likely need to invest more aggressively in value platforms and technology over time. After the big 2018 run, KeyBanc has a “sector perform” rating for BOJA stock.

Chipotle Mexican Grill (CMG)

After years of lagging the restaurant group, Chipotle has come roaring back to life this year. CMG stock is up 49 percent in 2018, with much of the gains coming after the company hired former Taco Bell head Brian Niccol as its new CEO. Gonzalez says Niccol will soon have Chipotle headed in a better, more clear strategic direction, which includes modern marketing techniques, a better approach to testing and scaling ideas and a more aggressive push of off-premise and digital capabilities. KeyBanc has an “overweight” rating and $500 price target for CMG stock.

Dunkin Brands Group (DNKN)

Dunkin has delivered only modest growth for investors in 2018 as the company has worked through a transitional year in its long-term Blueprint for Growth initiative. However, Dunkin has laid the groundwork for an uptick in growth numbers starting in 2019. Gonzalez is forecasting same-store sales growth of only about 1 percent in 2018, but a return to 3 percent growth in same-store sales by 2020. Unfortunately, with the stock up 33 percent in the past year, he says growth prospects are already priced in. KeyBanc has a “sector perform” rating for DNKN stock.

McDonald’s Corp. (MCD)

After a huge 2017, McDonald’s stock has cooled in 2018, declining 4 percent year-to-date. Gonzalez says the McDonald’s turnaround effort is still in the early innings, and efforts to beef up its brand and regain and retain lost customers have yet to meaningfully impact the bottom line. The company’s Experience of the Future initiative includes adding in-store kiosks and increasing delivery and mobile ordering options. Gonzalez says the innovation should set McDonald’s up for sustainable, long-term same-store sales growth. Once store remodeling is complete, KeyBanc forecasts a double-digit total return profile for investors. KeyBanc has an “overweight” rating and $185 price target for MCD stock.

Restaurant Brands International (QSR)

Restaurant Brands International has taken a 6.2 percent hit to its share price in 2018, but Gonzalez says investors are not appreciating the unique combination of global growth, relative value and a nearly 100 percent franchised business model. With roughly 6 percent annual unit growth, a rehabilitated Burger King brand, a best-in-class dividend yield of 3.1 percent, and a healthy balance sheet that provides potential merger flexibility, Gonzalez says there’s a lot for long-term investors to like about QSR stock. KeyBanc has an “overweight” rating and $68 price target for QSR stock.

Starbucks Corp. (SBUX)

Starbucks may not be the high-powered growth stock it once was, but Gonzalez says a multi-year period of same-store sales growth disappointment is likely coming to an end. With market expectations tempered, Gonzalez says there are several potential bullish catalysts in the pipeline for Starbucks. An increased focus on digital marketing, personalization, and menu innovation are all positives. In addition, focusing international efforts on China, including a recent delivery partnership with Alibaba Group Holding (BABA), could unlock a massive long-term growth opportunity for Starbucks. KeyBanc has an “overweight” rating and $65 price target for SBUX stock.

Wendy’s Co. (WEN)

Wendy’s has been aggressively restructuring its business in recent years, offloading its stake in Arby’s parent company Inspire Brands for $450 million in August. Wendy’s has also reduced its restaurant ownership rate to less than 5 percent, cut inventory levels by $100 million, remodeled its stores and updated its ingredients. Looking ahead, Wendy’s has now shifted its attention to ramping up digital offerings, investing in delivery capabilities and managing human capital to adapt to rising labor costs. Despite the progress, Gonzalez says he will keep a “sector weight” rating on WEN stock until system-wide sales growth accelerates.

Yum Brands (YUM)

Yum Brands has also been focusing on shifting to an exclusively franchised model, and Gonzalez estimates that the company will own less than 1,000 of its 46,000 global Taco Bell, Pizza Hut and KFC locations by the end of 2018. Gonzalez is targeting 2 percent same-store sales growth in 2019, which implies system-wide sales growth of 6 percent. However, with the stock currently trading at an earnings multiple premium to peers, Gonzalez says investors should wait for an uptick in growth or a pullback in the stock. KeyBanc has a “sector weight” rating for YUM stock.

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