This article looks at the 10 best restaurant stocks to buy according to analysts.
The restaurant industry has been challenged this year, with ingredient prices skyrocketing, rising operating expenses, and growing tipping fatigue. This has resulted in a shift in consumer preferences as Americans become more cautious about their spending patterns.
READ ALSO: 11 Best Fast Food Stocks To Invest In Right Now and 7 Best Restaurant Dividend Stocks to Buy Now.
Quick-service restaurants are integral to American culture, with around 83% of the families in the country dining out at these at least once a week, and one-third of Americans consuming fast food daily. However, a recent survey revealed that about 78% of people consider fast food a ‘luxury’ now and are cutting down on their consumption amid rampant inflation in the country.
Increased commodity and supply chain costs have also hurt the broader restaurant industry through surging menu prices, prompting Americans to cook cheaper meals at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
According to a report in the National Public Radio (NPR), published in August, grocery prices grew only 1.1% over the past year, whereas the cost of restaurant meals soared 4.1%. Since mid-2020, restaurant prices have surged by nearly 24% compared to the cost of grocery items, which has grown 19% during this period. As a result, several notable restaurant chains have seen their earnings plummet this year, as consumers opt for a grocery splurge over expensive dining.
Despite pressures, it is not all doom and gloom for America’s restaurant industry. The market remains resilient, driven by the general desire among the citizens to dine at restaurants. Another critical factor that keeps the industry alive is how well it adapts to changing consumer trends and preferences through new offerings and value deals.
This year, the National Restaurant Association expects sales to top $1.1 trillion and add 200,000 new jobs to the economy, marking a new milestone for the industry. A restaurant ETF issued by AdvisorShares had gained 27.53% year-to-date as of the close of day on November 13, outperforming the broader market by two percentage points.
The downturn in inflation also bodes well for the future of the restaurant industry. Consumer prices have eased down from the peak of 9.1% in June 2022 to 2.6% in October 2024. While inflation rose 0.2% from last month and went higher for the first time since March this year, the condition remains favorable with the figure staying close to the Federal Reserve’s goal of a two percent annual rate.
Interest rate cuts are also likely to help boost restaurant stocks in the long run, as the low cost of borrowing would allow restaurant owners to go ahead with their expansion plans and also encourage consumer spending. In September this year, the Federal Reserve announced a 50-basis point rate cut, the first since March 2020. This was followed by a further quarter-point reduction in early November to bring interest rates to a range of 4.50% to 4.75%.
With that said, let’s now head over to the list of the best restaurant stocks to buy according to analysts.
A close-up of a table of people enjoying their meal and conversing in a Denny’s restaurant.
Methodology
For this article, we sifted through screeners to identify stocks in the restaurant industry that had an average share price upside potential of 20% or higher as of the close of day on November 12, 2024. Then we listed the top 10 stocks in ascending order of their average share price upside potential. We have only considered stocks that had at least three analyst ratings.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Restaurant Stocks To Buy According to Analysts:
10. Portillo’s Inc. (NASDAQ:PTLO)
Average Share Price Upside Potential as of November 12: 21.6%
Portillo’s Inc. (NASDAQ:PTLO) is a fast-casual restaurant chain that specializes in serving Chicago-style street food, with its menu featuring all-American favorites such as hotdogs, chargrilled burgers, and crinkle-cut fries, alongside various other sandwiches and shakes. It was founded in 1963 in Villa Park, Illinois, by Dick Portillo, and now operates in over 80 locations across different states in the U.S.
On November 5, the company reported financial results for the third quarter of 2024. Revenue was posted at $178.3 million, up 6.9% year-over-year, driven by the opening of a dozen new restaurants over the past 15 months. Same-restaurant sales declined by 0.9% during the quarter due to a decrease in transactions. Average check grew 2.6%, helped by a 4.4% increase in menu prices of certain items. EPS was logged at $0.11 beating expectations by five cents.
Portillo’s Inc. (NASDAQ:PTLO) opened its first restaurant in the Houston area in Richmond in October. The opening has been well-received with sales reminiscent of the levels observed two years ago in the company’s first restaurant in the Dallas area. Overall, the fast-casual restaurant chain plans to grow its restaurant count by 12% to 15% next year.
The restaurant company has been under pressure from investors that it should no longer own and develop real estate, and should shrink the size of its current outlets to improve its restaurant cash-on-cash returns. Portillo’s Inc. (NASDAQ:PTLO) is making great strides in reducing the size of its restaurants. Later this year, two restaurants built on 6,200 square feet will open in Texas. These will be 1,500 square feet smaller than traditional Portillo’s restaurants built in the past. The company is committed to refining its development model and taking out excess square footage, which should optimize its cash-on-cash returns.
Portillo’s Inc. (NASDAQ:PTLO) is among the best restaurant stocks to buy according to analysts, with a consensus Buy rating and an average upside potential of 21.6%.
9. Restaurant Brands International Inc. (NYSE:QSR)
Average Share Price Upside Potential as of November 12: 22.56%
Restaurant Brands International Inc. (NYSE:QSR) is a multinational restaurant holding company, headquartered in Toronto, Canada. It operates four major global food chains: Tim Hortons, Burger King, Popeyes, and Firehouse Subs. This allows the company to target various customer segments across different markets.
The company has made two strategic acquisitions this year to further bolster its global position and enhance its revenue stream. On May 16, it announced the acquisition of Carrols Restaurant Group, Inc., the largest Burger King franchisee in the U.S. with over 1,000 restaurants across 23 states. Carrols also operated 59 Popeyes restaurants in six states.
Restaurant Brands International Inc. (NYSE:QSR) intends to re-franchise hundreds of Carrols’ restaurants over the next few years. Later, on June 28, the company acquired Popeyes China from Tims China and also agreed to co-invest up to $500 million with Cartesian Capital to fuel the growth of Tims China. Investments in China have resulted in a bullish sentiment around Restaurant Brands International Inc., as China is one of the largest fast-food markets in the world
Despite sales declining in the broader restaurant industry, Restaurant Brands International Inc. (NYSE:QSR)’s financial performance remains resilient. Comparable sales were up 0.3% from last year in Q3, while net restaurants grew 3.8% year-over-year, translating into a system-wide sales increase of 3.2%. Consolidated revenue was posted at $2.29 billion, falling just shy of expectations of $2.31 billion. EPS was logged at 93 cents, missing forecasts by two cents.
Tim Hortons was the top performer during the quarter, witnessing significant same-store sales growth, driven by improved speed of service and growing traffic. System-wide sales declined for Burger King, Popeyes, and Firehouse Subs, attributed to a weakening in consumer spending over the summer.
While talking to CNBC on November 5, CEO Josh Kobza stated that sales trends had improved in October due to effective marketing promotions and improved economic conditions, with inflation easing, interest rates being cut, and gas prices going down.
Following the announcement of results for Q3, most Wall Street analysts maintained their Buy rating for Restaurant Brands International Inc. (NYSE:QSR). It is one of the best restaurant stocks, with a share price upside potential of 22.56%.
8. Dine Brands Global, Inc. (NYSE:DIN)
Average Share Price Upside Potential as of November 12: 26.04%
Dine Brands Global, Inc. (NYSE:DIN) is an American publicly traded company that owns and franchises three restaurant chains: Applebee’s Neighborhood Grill + Bar, the International House of Pancakes (IHOP), and Fuzzy’s Taco Shop.
On November 6, the company announced mixed results for the third quarter of fiscal year 2024. CEO John Peyman acknowledged that Dine was pressured by consumer pullback and a high promotional activity environment in the past quarter. Consolidated revenue for Q3 was posted at $195 million, dropping 3.8% year-over-year, primarily driven by a decrease in franchise and rental revenues. Applebee’s and IHOP both reported a drop in comparable sales. EPS was logged at $1.34, falling short of expectations by six cents.
Dine Brands Global, Inc. (NYSE:DIN) plans to continue its focus on value-driven promotions and marketing campaigns during the holiday season to drive traffic and sales. In Q3, Applebee’s entered into a partnership as the official grill and bar of the NFL. It also launched a new advertisement featuring players and coaches highlighting the $0.50 boneless wings campaign. During the Q3 earnings call, the company stated that early engagements with the campaign yielded encouraging results, reflecting the power of the brand alliance between Applebee’s and NFL.
Dine Brands Global, Inc. (NYSE:DIN) ended Q3 with improved liquidity. Unrestricted cash totaled $169.6 million, growing 10.5% quarter-over-quarter. It also paid $7.8 million in dividends. Dine Brands Global, Inc. (NYSE:DIN) is one of the best restaurant stocks to buy according to analysts, with a consensus Buy rating.