5 Solid Stocks to Boost Your Portfolio on Surging Restaurant Sales

The U.S. restaurant industry is growing at a steady pace amid price challenges and inflationary pressures. Sales at food services and drinking places have been rising at a rapid pace as consumers continue to spend lavishly.

Although retail sales unexpectedly declined in July, the restaurant industry maintained its momentum, with sales surging. Restaurants have also been rapidly revamping their menus and introducing special deals, discounts and value meals to better align with customer demands and preferences.

Given this situation, it would be ideal to invest in restaurant stocks with a strong online presence. We have selected five stocks, namely, Yum China Holdings, Inc. YUMC, BJ's Restaurants, Inc. BJRI, Brinker International, Inc. EAT, The Cheesecake Factory Incorporated CAKE and Texas Roadhouse, Inc. TXRH. Each of these stocks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Restaurant Sales Surge

Sales at eating and drinking places in the United States totaled $107.2 billion, increasing 0.5% in July after growing 0.4% in the prior month, the Commerce Department reported last week.

Year over year, sales at U.S. restaurants jumped 4.2%, suggesting that consumers have been spending aggressively on eating out despite higher energy and food prices. Restaurant sales are a key gauge for the Federal Reserve to assess household finances.

Higher energy costs since the U.S.-Iran war began in late February have posed a major challenge for restaurants. Although energy costs declined in June, they have once again been on the rise with the Middle East crisis intensifying earlier this month, with no signs of peace talks between the two warring nations.

However, consumers have still been spending lavishly at food and drinking places, with sales totaling $711. 8 billion between January and July.

Also, tax refunds have been helping consumers to spend more freely at restaurants. Inflation eased in July as oil prices eased, prompting the Federal Reserve to keep interest rates unchanged at its July FOMC meeting.

At the same time, higher prices have put added pressure on restaurant operators as customers become more cautious about their spending and look for better value. Quick-service restaurants, especially those known for affordable meals, have generally fared better than many of their peers in the challenging environment.

As more budget-conscious consumers look for affordable dining options, competition in the value segment has grown tougher. Restaurant chains are responding with more promotions, discounts and value-focused meal deals to attract customers.

Despite the challenges, demand for affordable dining remains robust. Many restaurant chains are stepping up their marketing, forming partnerships and adding new items to their menus to stay competitive and encourage repeat visits.

5 Restaurant Stocks With Growth Potential

Yum China Holdings

Yum China Holdings operates both company-owned and franchised restaurants. YUMC’s brands include KFC, Pizza Hut and Taco Bell. The company also owns East Dawning, Little Sheep and COFFii & JOY.

Yum China Holdings’ expected earnings growth rate for the current year is 17.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the past 90 days.

BJ's Restaurants

BJ's Restaurants, Inc. owns and operates a chain of high-end casual dining restaurants in the United States. BJRI’s menu offers a wide range of dining options, including everyday lunch and dinner, special occasions and late-night business.

BJ's Restaurants’ expected earnings growth rate for the current year is 4.9%. The Zacks Consensus Estimate for current-year earnings has improved 7.2% over the past 90 days.

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 40 years.

Brinker International’s expected earnings growth rate for the current year is 20.6%. The Zacks Consensus Estimate for current-year earnings has improved 4.4% over the past 90 days.

The Cheesecake Factory

The Cheesecake Factory Incorporated owns and operates 370 restaurants throughout the United States and Canada under brands, including The Cheesecake Factory and North Italia, Flower Child and a collection within the Fox Restaurant Concepts subsidiary. Internationally, CAKE operates 36 Cheesecake Factory restaurants under licensing agreements. It operates two bakery production facilities as well.

The Cheesecake Factory’s expected earnings growth rate for the current year is 18.6%. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the past 90 days.

Texas Roadhouse

Texas Roadhouse, Inc. is a full-service, casual dining restaurant chain, which offers assorted seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. TXRH operates restaurants under the Texas Roadhouse and Aspen Creek names.

Texas Roadhouse’s expected earnings growth rate for the current year is 8.7%. The Zacks Consensus Estimate for current-year earnings has improved 3.8% over the past 90 days. 

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This article originally published on Zacks Investment Research (zacks.com).

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