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Wall Street JournalBuy 3 Thriving Restaurant Stocks Set to Beat on Q3 Earnings This Month
The U.S. restaurant industry continues to be impacted by high wages, food cost inflation and traffic woes in 2024 after two years of strong growth. Despite these headwinds, a handful of restaurant stocks have flourished year to date, defying the industry’s weak performance.
Investment in these stocks with a favorable Zacks Rank and a possible earnings beat should provide more returns in the near future. At this stage, we recommend investing in three big restaurant stocks — Chipotle Mexican Grill Inc. CMG, Texas Roadhouse Inc. TXRH and Wingstop Inc. WING.
Restaurant Industry at a Glance
The restaurant industry has been facing declining traffic for quite some time. A rapid increase in menu prices is the primary reason behind traffic erosion. Restaurant operators are grappling with high cost of operations.
Intense competition, high wages and food cost inflation are concerning. The industry continues to bear increased expenses, which have been affecting margins. Higher pre-opening costs, marketing expenses and costs related to sales-boosting initiatives are exerting pressure on the company’s margins.
Restaurant operators are trying to remain buoyant focusing on digital innovation, sales-building initiatives and cost-saving efforts. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales.
Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth. Moreover, the industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks.
In the past three months, the Zacks defined Retail – Restaurants Industry has gathered momentum. The industry is currently in the top 42% of the Zacks Industry Rank. Since the restaurant industry is ranked in the top half of the Zacks Ranked Industries, we expect this industry to outperform the market over the next three to six months.
3 Restaurant Stocks to Buy Ahead of Q3 Earnings
Each of these stocks carries a Zacks Rank #2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after their earnings release. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows the price performance of our three picks year to date.
Image Source: Zacks Investment Research
Chipotle Mexican Grill Inc.
Chipotle Mexican Grill has long been a pioneer in serving superior quality ingredients, including the use of local and organically grown produce, dairy from cows raised on pasture, and meat from animals raised without hormones or antibiotics. CMG continues to emphasize the quality of food, including food with integrity standards, fresh preparation (utilizing classic cooking techniques), customization, generous portions, convenience and speed.
CMG has been indulging in strategic investments that align with its digital innovation and allow it to cater to the demands of its customers. CMG is focusing on expanding its digital program to drive growth. The company is leaving no stone unturned to make digital ordering more appealing to customers and more efficient for its restaurants.
In this regard, CMG has redesigned and simplified its online ordering site, enabled online payment for catering and online meal customizations and collaborated with several well-known third-party providers for delivery. CMG has an Earnings ESP of +3.49%. The company will report on Oct 29, after the closing bell.
Strong Earnings Estimate Revisions for CMG Shares
For third-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $2.81 billion, suggesting an improvement of 13.9% year over year and earnings per share (EPS) of $0.24, indicating an increase of 4.4% year over year. The company reported positive earnings surprises in the last four reported quarters with the average beat being 9.9%.
Moreover, Chipotle Mexican Grill has witnessed positive earnings estimate revisions for 2024 in the last 30 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 23.6% and 24.5%, respectively, for revenues and EPS in 2024.
Despite this solid growth, the current Zacks Consensus Estimate for 2025 revenues and EPS for CMG reflects an upside of 14.9% and 21.1%, respectively. In addition, CMG has a long-term (3-5 years) EPS growth rate of 22.1%, significantly higher-than the broad-market index, S&P 500’s growth rate of 13.5%.
Image Source: Zacks Investment Research
Texas Roadhouse Inc.
Texas Roadhouse is a full-service, casual dining restaurant chain offering 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.
TXRH also provides supervisory and administrative services for other licensed and franchise restaurants. Its second-quarter top line is likely to have been aided by productivity and margin enhancement initiatives and operational excellence across its restaurants.
TXRH offers its guests a selection of ribs, fish, seafood, chicken, pork chops, pulled pork and vegetable plates, an assortment of hamburgers, salads and sandwiches. TXRH has an Earnings ESP of +1.42%. The company will report on Oct 24, after the closing bell.
Solid Earnings Estimate Revisions for TXRH Stocks
For third-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $1.28 billion, suggesting an improvement of 14.4% year over year and earnings per share of $1.32, indicating an increase of 39% year over year. The company reported positive earnings surprises in three out of the last four reported quarters with the average beat being 0.4%.
Moreover, Texas Roadhouse has witnessed positive earnings estimate revisions for 2024 in the last 30 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 15.7% and 39.7%, respectively, for revenues and EPS in 2024.
Despite this solid growth, the current Zacks Consensus Estimate for 2025 revenues and EPS for TXRH reflects an upside of 7.5% and 10%, respectively. In addition, TXRH has a long-term (3-5 years) EPS growth rate of 17.5%, significantly higher-than the broad-market index, S&P 500’s growth rate of 13.5%.
Image Source: Zacks Investment Research
Wingstop Inc.
Wingstop franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. WING offers classic wings, boneless wings, and tenders that are cooked-to-order, and hand-sauced-and-tossed in various flavors.
WING’s third-quarter 2024 results are likely to benefit from delivery channel expansion, menu innovation and digital marketing initiatives. Also, its supply-chain strategy and robust unit economics are adding to the positives. WING has an Earnings ESP of +0.13%. The company will report on Oct 30, before the opening bell.
Impressive Earnings Estimate Revisions for WING Shares
For third-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $161.85 million, suggesting an improvement of 38.2% year over year and earnings per share of $0.97, indicating an increase of 40.6% year over year. The company reported positive earnings surprises in the last four reported quarters with the average beat being 21.8%.
Moreover, Wingstop has witnessed positive earnings estimate revisions for 2024 in the last 30 days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 36.5% and 52.8%, respectively, for revenues and EPS in 2024.
Despite this solid growth, the current Zacks Consensus Estimate for 2025 revenues and EPS for WING reflects an upside of 19.1% and 22.6%, respectively. In addition, WING has a long-term (3-5 years) EPS growth rate of 26.5%, significantly higher-than the broad-market index, S&P 500’s growth rate of 13.5%.
Image Source: Zacks Investment Research
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Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report
Texas Roadhouse, Inc. (TXRH): Free Stock Analysis Report
Wingstop Inc. (WING): Free Stock Analysis Report