3 Restaurant Stocks With a 'B' POWR Rating While macroeconomic obstacles have limited the restaurant industry's performance, technological breakthroughs brighten the industry's long-term prospects. Therefore, fundamentally strong restaurant stocks Chipotle Mexican Grill (CMG), Domino's Pizza Group (DPUKY), and...
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While macroeconomic obstacles have limited the restaurant industry's performance, technological breakthroughs brighten the industry's long-term prospects. Therefore, fundamentally strong restaurant stocks Chipotle Mexican Grill (CMG), Domino's Pizza Group (DPUKY), and El Pollo Loco Holdings (LOCO) might be solid buys now. These stocks are rated B (Buy) in our proprietary rating system. Read on….
Despite macroeconomic challenges dampening the restaurant industry's performance, it is well-positioned for a strong rebound thanks to cooling inflation, rising consumer spending, and rapid digitization. Therefore, quality restaurant stocks Chipotle Mexican Grill, Inc. (CMG), Domino's Pizza Group plc (DPUKY), and El Pollo Loco Holdings, Inc. (LOCO) could be wise additions to your portfolio now. These stocks are B (Buy) rated in our POWR Ratings system.
According to the National Restaurant Association's 2023 State of the Restaurant Industry study, the food service industry is forecast to reach $997 billion in revenues in 2023, with a projected rise of 500,000 jobs, despite high food costs and increased competition.
According to a new Square study, restaurants are completely reimagining how they do business to keep their operations running efficiently, boost their bottom line, and continue servicing their customers. 91% of restaurants have invested in or plan to invest in kitchen automation technologies. For delivery, 58% of restaurants prefer to use their own app or website.
In addition, AI is transforming the food industry by increasing supply chain management, transparency, and customer service. It enables restaurant operators to streamline operations, remain competitive, and respond to changing client demands. Affordable AI has altered the industry into one that is more efficient, transparent, and trustworthy.
The global fast food and quick service restaurant market is predicted to grow at a 6.1% CAGR to $371.47 billion by 2027.
Let's delve deeper into the fundamentals of the featured stocks.
Chipotle Mexican Grill, Inc. (CMG)
CMG owns and operates Chipotle Mexican Grill restaurants. It offers burritos, burrito bowls, quesadillas, tacos, and salads.
CMG's trailing-12-month ROCE of 44.74% is 345.8% higher than the industry average of 10.03%. Its trailing-12-month ROTA of 14.64 is 304% higher than the industry average of 3.62.
For the fiscal first year ended March 31, 2023, CMG's total revenue increased 17.2% year-over-year to $2.37 billion. The company's adjusted net income increased 80.7% year-over-year to $291.64 million. Its adjusted EPS came in at $10.50, representing an increase of 84.2% year-over-year.
The consensus revenue estimate of $9.88 billion for the year ending December 2023 represents a 14.4% increase year-over-year. Its EPS is expected to grow 35.6% year-over-year to $44.44 for the same period. It surpassed EPS estimates in three of four trailing quarters. CMG's shares have gained 63.1% over the past year to close the last trading session at $2101.49.
CMG's POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CMG has a B for Sentiment, Momentum, and Quality. Within the A-rated Restaurants industry, it is ranked #15 out of 45 stocks. Click here for the additional POWR Ratings for Growth, Stability, and Value for CMG.
Domino's Pizza Group plc (DPUKY)
Based in Milton Keynes, the United Kingdom, DPUKY owns, operates, and franchises several Domino's Pizza stores. It operates stores in the United Kingdom and the Republic of Ireland and also leases its stores.
DPUKY's trailing-12-month ROTC of 15.95% is 161.7% higher than the industry average of 6.10%. Its trailing-12-month ROTA of 15.67% is 332.6% higher than the industry average of 3.62%.
During the year that ended December 25, 2022, DPUKY's group revenue increased 7% year-over-year to £600.30 million ($751.64 million). Its gross profit increased 1.8% year-over-year to £273.50 million (342.45 million). Its profit for the period increased 4.2% year-over-year to £81.60 million ($102.17 million).
Analysts expect DPUKY's revenue to increase 9.3% year-over-year to $782.15 million for the year ending December 2023. The stock has gained 47.4% over the past nine months to close the last trading session at $7.15.
DPUKY's POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #9 in the Restaurants industry. It has a B for Momentum and Stability. To see additional DPUKY ratings for Growth, Value, Sentiment, and Quality, click here.
El Pollo Loco Holdings, Inc. (LOCO)
LOCO develops, franchises, licenses, and operates quick-service restaurants under the El Pollo Loco brand.
LOCO's trailing-12-month CAPEX/Sales of 4.66% is 43.9% higher than the 3.24% industry average. Its trailing-12-month ROTA of 4% is 10.4% higher than the 3.62% industry average.
LOCO's total revenue increased 4.1% year-over-year to $114.53 million in the fiscal first quarter that ended March 29, 2023. The company's income from operations grew 133.5% from its prior-year quarter to $7.75 million. Its net income rose 132.5% from the prior-year quarter to $4.92 million. Also, its EPS came in at $0.13, up 116.7% year-over-year.
Street expects LOCO's revenue to increase 2.6% year-over-year to $482.08 million for the year ending December 2023. Its EPS is expected to grow 23.5% year-over-year to $0.72 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 14.8% over the past nine months to close the last trading session at $9.14.
LOCO has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value and Momentum. It is ranked #12 in the same industry.
Beyond what is stated above, we've also rated LOCO for Growth, Stability, Sentiment, and Quality. Get all LOCO ratings here.
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CMG shares were trading at $2,119.83 per share on Thursday morning, up $18.34 (+0.87%). Year-to-date, CMG has gained 52.78%, versus a 15.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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