Restaurants and their stocks have been on a rollercoaster since the Covid-19 pandemic struck in 2020. Over the past four years, companies running restaurant chains have had to contend with store closures, operating at reduced capacity, moving their operations almost entirely online, reopening physical locations, food inflation, high interest rates, and consumers tightening their purse strings. The results have roiled restaurant stocks and made them difficult securities to own.
So far in 2024, the S&P 500 Restaurant Sub-Index is about flat on the year (down 1%). However, over the last six months, the index has risen 14%, showing notable improvement in the sector. Among restaurant stocks, a handful continue to outperform driven by strong sales and profits that have exceeded Wall Street forecasts. There are also several restaurant companies that have undertaken multi-year growth strategies coming out of the pandemic and are worth a look.
Here are three restaurant stocks to buy now: Q2 edition.
Restaurant Brands International (QSR)
There’s an opportunity to buy shares of Restaurant Brands International (NYSE:QSR) on weakness. So far this year, QSR stock is down 7%. The decline comes despite the company’s latest financial results beating analyst expectations on the top and bottom lines, and as it successfully executes a multi-year revitalization of the Burger King franchise. Restaurant Brands owns Popeyes Chicken, Firehouse Subs and the Tim Hortons coffee chain, in addition to its flagship Burger King outlets.
For the final quarter of 2023, Restaurant Brands International reported earnings per share (EPS) of 75 cents versus 73 cents that was expected on Wall Street. Revenue came in at $1.82 billion compared to $1.81 billion that was forecast. Total sales were up 8% from a year earlier. The company said it is seeing positive results from its Burger King turnaround strategy that includes remodeling restaurants and spending more money on advertising to drive customer traffic and sales.
The average price target on QSR stock among 22 Wall Street analysts is $115.40, which is 18% higher than where it currently trades.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (NYSE:CMG) is riding high on strong earnings and plans to split its stock for the first time. The restaurant chain that specializes in Mexican cuisine has announced a 50-for-1 stock split to be executed in June of this year. The stock split will be the first ever for Chipotle, which went public in 2006 and whose shares are currently trading at just under $3,000.00, putting them out of reach for many retail investors. The 50-for-1 stock split will lower Chipotle’s share price to around $60.
Chipotle’s stock is expected to begin trading on a split adjusted basis when the market opens on June 26. News of the stock split comes as Chipotle continues to issue strong financial results that almost always beat Wall Street expectations.
Most recently, Chipotle reported EPS of $10.36 compared to $9.75 that was expected amongst analysts. Revenue came in at $2.52 billion versus $2.49 billion that was forecast on Wall Street. Sales were up 15% from a year earlier. CMG stock has risen 67% in the last 12 months, including a 32% year-to-date gain.
Domino’s Pizza (DPZ)
Domino’s Pizza (NYSE:DPZ) is another restaurant stock that is flying high. Over the past year, DPZ stock has increased 50%, including a 20% gain since January of this year. Domino’s also continues to deliver better-than-expected financial results, and recently raised its quarterly dividend by 25%. Domino’s now pays its shareholders a quarterly dividend of $1.51 a share, up from $1.21 previously. The pizza delivery giant has also announced a new $1 billion stock buyback program.
The dividend increase and stock buyback were announced along with strong Q4 2023 results. Domino’s Pizza achieved EPS of $4.48, which topped expectations of $4.38. Revenue amounted to $1.40 billion, which about matched forecasts on Wall Street.
Same-store sales in the U.S. grew by 2.8% from a year earlier. Late last year, Domino’s management team announced a new growth strategy that aims to open 1,100 stores through 2028 and increase its retail sales by 7% a year on average.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.