We recently published a list of 10 Best Restaurant Stocks To Buy According to Analysts. In this article, we are going to take a look at where Cannae Holdings, Inc. (NYSE:CNNE) stands against other 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%.
Our 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).
A financial analyst at a trading desk, monitoring large scale investments in real-time.
Cannae Holdings, Inc. (NYSE:CNNE)
Average Share Price Upside Potential as of November 12: 27.92%
Cannae Holdings, Inc. (NYSE:CNNE) is an investment firm that primarily invests in restaurants, football clubs, healthcare technology, and financial services. It was founded in 2014 and is based in Las Vegas, Nevada. The company’s portfolio of restaurants includes Ninety Nine Restaurant & Pub and O’Charley’s. Cannae has equity ownership interests of 88.5% and 65.4%, respectively, in these two restaurants.
Both restaurants fall in the casual dining segment of the restaurant industry. Ninety Nine Restaurant & Pub was founded in 1952 and now has outlets in 93 locations across seven northeastern states, while O’Charley’s was first established in 1971 and comprises four franchise locations and 58 company-owned restaurants in the southern and midwestern states.
Cannae Holdings, Inc. (NYSE:CNNE) declared financial results for the third quarter of 2024 on November 12. Quarterly total operating revenue was posted at $113.9 million, of which 90% was restaurant revenue. However, revenue was down from $144 million during the same period last year, due to a reduction of store locations.
Since last year, the company has been closing numerous unprofitable and struggling restaurants which were compressing margins amid inflation in the country. As a result, operating expenses declined 33% year-over-year to $133 million, attributable to lower external manager fees and restaurant item costs. The cost of restaurant revenue was also 20% lower from the same period last year because of reduced restaurant locations.
Recognized gains for the quarter stood at $23 million, a significant improvement from the $130 million of losses last year. However, the gains were primarily non-cash fair-value pickups relating to Paysafe and Dayforce shares. The company wants to transition out of public securities to private investments. As part of this strategy, on October 7, Cannae Holdings, Inc. (NYSE:CNNE) in partnership with KDSA Investment Partners acquired a majority stake in The Watkins Company, a 156-year-old brand known for its flavoring products.
The company is hopeful that this business will provide cash flow through equity distributions and preferred dividends. Cannae’s balance sheet remains stable with $40 million in cash and listed securities valued at over $1.4 billion. It has returned around $243 million to shareholders this year through buybacks and dividends, and plans on paying a quarterly dividend of 12 cents per share in December as well.
Cannae Holdings, Inc. (NYSE:CNNE) is among the best restaurant stocks to buy according to analysts with a consensus Buy rating.
Overall, CNNE ranks 7th on our list of best restaurant stocks to buy according to analysts. While we acknowledge the potential of restaurant companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CNNE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
