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4 Restaurant Stocks to Buy on Robust Sales and Hiring

Steady consumer spending has been driving the retail sector, which saw sales increase in April despite inflationary pressures. A resilient labor market and steady wage growth are also prompting consumers to spend lavishly at restaurants and bars.

In fact, the restaurant industry has been doing well despite rising costs and is projected to have the best summer of hiring since 2017. Given this situation, stocks like Chipotle Mexican Grill, Inc. CMG, McDonald's Corporation MCD, Wingstop Inc. WING and Yum China Holdings, Inc. YUMC are expected to benefit in the near term.

Restaurant Sales Jump

Sales at restaurants and bars rose a solid 0.6% in April, as consumers spent more on eating out, according to the latest retail sales report by the Commerce Department. This came as retail sales rebounded in April, growing 0.4% month over month in April, following a decline of 0.7% in March.

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Higher sales at restaurants are being driven by steady consumer spending. Restaurant sales is the only service category that is part of the retail sale report.

The robust sales at restaurants in April also indicate that people have once again started spending more on services as demand for consumer goods continues to slow amid growing price pressures.

Higher interest rates have been making people spend cautiously, but that hasn’t stopped them from shelling out more at restaurants and bars.

One of the primary reasons behind the steady growth in consumer spending is the resilient labor market. Although the unemployment rate increased slightly to 3.7% in May, the economy added 339,000 jobs in the month, way above economists’ expectations of a rise of 190,000, the Bureau of Labor Statistics reported on Jun 2. Out of the total job additions, 48,000 were in leisure and hospitality.

A separate report from Automatic Data Processing, Inc. ADP, showed that private payrolls increased by 278,000 in May, of which 208,000 jobs were added in leisure and hospitality.

Also, the National Restaurant Association (NRA), predicts that half a million jobs will be added to bars and restaurants this summer. According to the NRA, if this target is achieved, it will be the best summer for hiring since 2017.

The restaurant industry should do well in the coming days as higher traveling will drive sales, as predicted by Deloitte. According to a Deloitte survey, 50% of Americans plan to travel and stay in paid lodging, which is up 46% from 2022.

In a separate report, the NRA said that the restaurant industry is projected to grow at a faster pace in 2023. Restaurant sales are expected to reach $997 billion in 2023, up 11% from the 2022 estimates of $898 billion.

Our Choices

Given this situation, it would be ideal to invest in these four restaurant stocks.

Chipotle Mexican Grill, Inc., together with its subsidiaries, operates quick-casual and fresh Mexican food restaurant chains. CMG offers a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads.

Chipotle Mexican Grill’s expected earnings growth rate for the current year is 33.9%. The Zacks Consensus Estimate for current-year earnings has improved more than 6.1% over the past 60 days. CMG currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

McDonald's Corporation is a leading fast-food chain that currently operates more than 39,000 restaurants in more than 100 countries. MCD mainly operates and franchises quick-service restaurants under the McDonald’s brand. Nearly 93% of McDonald'srestaurants worldwide are owned and operated by independent local businesses.

McDonald's Corporation’s expected earnings growth rate for the current year is 9.3%. The Zacks Consensus Estimate for current-year earnings has improved more than 5.3% over the past 60 days. MCD currently carries a Zacks Rank #2 (Buy).

Wingstop Inc. franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. Wingstop offers cooked-to-order, hand-sauced and tossed chicken wings.

Wingstop’sexpected earnings growth rate for next year is 13%. The Zacks Consensus Estimate for current-year earnings has improved 10.6% over the past 60 days. WING currently sports a Zacks Rank #1.

Yum China Holdings, Inc. operates both company-owned and franchised restaurants. YUMC’s brands include The 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 89.5%. The Zacks Consensus Estimate for current-year earnings has improved 11.2% over the past 60 days. YUMC currently has a Zacks Rank #1.

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Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report

McDonald's Corporation (MCD) : Free Stock Analysis Report

Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report

Wingstop Inc. (WING) : Free Stock Analysis Report

Yum China (YUMC) : Free Stock Analysis Report

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