The restaurant industry has witnessed solid growth post-pandemic, driven by changing consumer preferences, a higher frequency of dining out, and the popularity of food delivery services. Moreover, the industry's ability to withstand economic fluctuations makes investing in restaurant stocks a potential hedge against uncertain economic conditions for your portfolio.
Against the backdrop, buying the shares of three fundamentally sound restaurant companies Compass Group PLC (CMPGY), Bloomin' Brands, Inc. (BLMN), and Chuy's Holdings, Inc. (CHUY), could be a wise choice, as these companies show promising signs of momentum this month.
According to Deloitte, despite initial concerns about restaurant recovery post-pandemic, 55% of consumers have returned to dine-in restaurants with the same or even increased frequency compared to before the disruption. Additionally, 69% of consumers continued to order takeout or delivery at the same rate or even more frequently than before.
Furthermore, In the post-pandemic era, the restaurant industry has witnessed a substantial surge in the demand for online food delivery services. To cater to this growing demand, restaurants have adopted various strategies, including the establishment of cloud kitchens.
The global cloud kitchen market reached a value of $63.90 billion and is further anticipated to expand and reach a value of $125.50 billion by 2028, growing at a steady CAGR of 11.9% during the period from 2022 to 2028. Additionally, the global online food delivery services market is expected to witness a substantial CAGR of 18.7% between the period spanning 2022 to 2030.
Moreover, the adoption of these strategies has allowed restaurants to optimize their operations, respond to consumer demands, and expand their reach, leading to cost savings and increased profitability. The global foodservice market is projected to grow from $2.65 trillion in 2023 to $5.42 trillion by 2030, expanding at a CAGR of 10.8%.
Given the innovative measures to adapt to consumer tastes and preferences, the restaurant industry will most likely remain in a bright spot. Thus, investing in CMPGY, BLMN, and CHUY could be beneficial. With that being said, let us delve deeper into the fundamentals of the featured stocks.
Compass Group PLC (CMPGY)
Based in Chertsey, the United Kingdom, CMPGY operates as a food and support services company in North America, Europe, and internationally. It serves business and industry; healthcare and senior living market; education; sports and leisure; and defense, offshore, and remote sectors.
The stock’s trailing-12-month ROCE and ROTC of 23.63% and 12.79% are 138.7% and 110.3% higher than the 9.90% and 6.08% industry averages, respectively. Likewise, its trailing-12-month asset turnover ratio of 1.82x is 82.9% higher than the industry average of 1.00x.
For the six-month period that ended on March 31, 2023, CMPGY’s revenue increased 36.2% year-over-year to £15.66 billion ($20.04 billion), while its operating profit rose 37.6% from the year-ago value to £878 million ($1.12 billion).
The company’s profit for the period and EPS amounted to £642 million ($821 million) and 36.40p, up 33.8% and 36.3% year-over-year, respectively. Also, its EBITDA grew 41.5% from the year-ago value to £1.47 billion ($1.88 billion).
Street expects CMPGY’s revenue and EPS for fiscal 2023 (ending September 30, 2023) to increase 31.2% and 34.4% year-over-year to $39.95 billion and $1.01, respectively.
Additionally, its revenue and EBIT have grown at CAGRs of 5.8% and 5.3%, over the past three years, respectively. Likewise, its net income and levered FCF have improved at CAGRs of 5.9% and 7.7% over the same period, respectively.
Over the past nine months, the stock has gained 22.3% to close the last trading session at $26, higher than its 200-day moving average of $24.51, indicating an uptrend.
CMPGY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum and Stability. In the 44-stock B-rated Restaurants industry, it is ranked #5. Click here to see CMPGY’s ratings for Growth, Value, Sentiment, and Quality.
Bloomin' Brands, Inc. (BLMN)
BLMN owns and operates casual, upscale casual, and fine dining restaurants through two segments: U.S. and International. Its restaurant portfolio has four concepts, including Outback Steakhouse; Carrabba's Italian Grill; Bonefish Grill; and Fleming's Prime Steakhouse & Wine Bar.
BLMN’s trailing-12-month ROCE and ROTC of 38.49% and 9.44% are 288.9% and 55.2% higher than the 9.90% and 6.08% industry averages, respectively. Additionally, its trailing-12-month asset turnover ratio of 1.41x is 40.9% higher than the industry average of 1.00x.
BLMN’s total revenues for the second quarter (ended June 25, 2023) increased 2.4% year-over-year to $1.15 billion. Its income from operations rose 1.9% from the year-ago value to $89.45 million
The company’s adjusted net income and EPS came in at $68.28 million and $0.74, representing increases of 8.4% and 8.8% from the prior-year quarter, respectively. During the same period, its cash and cash equivalents amounted to $88.79 million, up 4.8% compared to $84.74 million as of December 25, 2022.
Analysts expect BLMN’s revenue and EPS for the third fiscal quarter (ending September 30, 2023) to increase 3.5% and 25.7% year-over-year to $1.09 billion and $0.44, respectively. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
Over the past three years, its revenue and net income have grown at CAGRs of 3.9% and 54.9%, respectively. While its EBIT and EPS have improved at CAGRs of 35.3% and 56.3%, over the same period, respectively.
The stock has gained 29.3% year-to-date to close the last trading session at $26.01. Also, it is trading higher than its 100-day moving average of $25.55 and 200-day moving average of $24.37.
BLMN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Quality. Within the same B-rated industry, it is ranked #7. Click here to see BLMN’s rating for Stability and Sentiment.
Chuy's Holdings, Inc. (CHUY)
CHUY through its subsidiaries, owns and operates full-service restaurants under the Chuy's name in the United States.
The stock’s trailing-12-month net income and levered FCF margins of 5.43% and 5.68% are 29.6% and 44.7% higher than the 4.19% and 3.93% industry averages, respectively. Likewise, its trailing-12-month ROTA of 4.91% is 32% higher than the industry average of 3.72%.
In the first quarter that ended March 26, 2023, CHUY’s revenue increased 11.9% year-over-year to $112.49 million, while its income from operations improved by 37.6% from the year-ago value to $8.37 million. In addition, the company’s adjusted net income amounted to $8.51 million and $0.47 per share, up 30.8% and 38.2% from the prior-year quarter, respectively.
The consensus EPS estimate of $0.53 for the second quarter (ended June 30, 2023) represents a 21.2% improvement year-over-year. The consensus revenue estimate of $118.27 million for the same quarter represents a 6.6% increase year-over-year.
Moreover, the company topped the revenue estimates in three of the trailing four quarters and EPS estimates in each of the trailing four quarters, which is impressive.
Its revenue and levered FCF have increased at CAGRs of 1.2% and 51.1% over the past three years, respectively. Over the same period, its EBIT improved at a CAGR of 27.7%.
CHUY’s shares have gained 80.5% over the past year to close the last trading session at $41.19, higher than its 50-day moving average of $39.92 and 200-day moving average of $34.58.
It’s no surprise that CHUY has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Momentum. Out of 44-stocks in the same industry, it is ranked #8.
In addition to the POWR Ratings we’ve stated above, we also have CHUY’s ratings for Growth, Value, Stability, Sentiment, and Quality. Get all CHUY ratings here.
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CMPGY shares were trading at $25.76 per share on Wednesday afternoon, down $0.24 (-0.91%). Year-to-date, CMPGY has gained 12.58%, versus a 18.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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