Looking for Great Returns? 4 Sizzling Restaurant Stocks to Buy

The coronavirus pandemic has rattled almost all the industries and the restaurant industry has been no exception to the trend. Notably, the restaurant industry has been grappling with declining traffic for quite some time now, and the pandemic-induced crisis has only aggravated the scenario further. Rapid increase in menu price and the coronavirus crisis are the primary reasons behind erosion in traffic.

However, some restaurateurs have been doing well amid the pandemic, on the back of recent partnerships with delivery channels including DoorDash, Grubhub, Postmates and Uber Eats; digital innovation; rollout of self-service kiosks and loyalty programs.

Digitalization Holds Key

The industry is benefiting from increase in off-premise sales, which primarily includes delivery, takeout, drive-thru, catering, meal kits, and off-site options such as kiosks and food trucks, owing to the coronavirus pandemic. With dining rooms not operating in full capacity owing to the coronavirus-induced crisis, off-premise sales have been increasing sharply. Per National Restaurant Association, more than 60% of the restaurant foods are consumed off-premise. By 2025, off-premise is likely to account for approximately 80% of the industry’s growth.

Moreover, restaurant operators are focusing on driverless delivery systems to augment sales during the coronavirus-induced scenario. This is anticipated to bring down expenses substantially and ensure safety amid the pandemic as it does away with delivery personnel. Owing to the crisis scenario, consumers have not only been particular regarding the quality and taste of food but are also preferring contactless delivery.

4 Solid Picks

With the help of the Zacks Stock Screener, we have zeroed in on four restaurants stocks, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies are also ahead of others in the digital game and have witnessed a sharp rise in the past three to six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Domino's Pizza, Inc. DPZ is currently one of the world's largest fast-food chains, with more than 17,000 stores in over 90 international markets. The Zacks Rank #2 company is investing heavily in technology-driven initiatives like digital ordering to boost sales. It has also started driverless pizza delivery services. To this end, the company has partnered with Nuro — a robotic company for the delivery services. During the first-quarter 2020 conference call, the company announced that it moved to 100% contactless delivery model across the United Sates. Moreover, its latest contactless carryout option — Carside Delivery — that customers can choose while placing a prepaid online order is a testament to the same. Notably, Carside Delivery option is now available in stores across the United States.

In the past six months, shares of the company have surged 40%, against the industry’s decline of 12.1%. The Zacks Consensus Estimate for earnings for current quarter and year has been revised to $2.25 and $11.34 from $2.02 and $10.93, respectively, in the past 60 days.

Yum! Brands, Inc. YUM is the global leader in multi-branding and offers consumers more choice and convenience at one outlet. The Zacks Rank #2 company’s partnership with online food delivery platform Grubhub has been improving online sales and delivery from its restaurants. Additionally, the company implemented various digital features in mobile and online platforms across all brand segments. The company has been striving to make its delivery services swifter and the results have been positive so far.

n the past three months, shares of the company have gained 10.1%, compared with the industry’s rally of 9.5%. The Zacks Consensus Estimate for earnings for current quarter and year has been revised to 50 cents and $2.8 from 46 cents and $2.72, respectively, in the past 60 days.

Papa John's International, Inc. PZZA operates and franchises pizza delivery and carryout restaurants in the United States and other specific international markets. Shares of the company have gained 36.7% in the past three months courtesy of robust delivery system. The Zacks Consensus Estimate for earnings for current quarter and year has been revised to 40 cents and $1.16 from 34 cents and $1.27, respectively, in the past 60 days.

Meanwhile, the Zacks Rank #1 company continues to invest in direct customer delivery. In March 2020, Papa John's re-engineered its ordering and delivery process with the launch of no contact delivery.

Chipotle Mexican Grill, Inc. CMG together with its subsidiaries operates quick-casual and fresh Mexican food restaurant chains. Shares of the company have gained 40.2% in the past three months. The Zacks Consensus Estimate for 2020 earnings has witnessed upward revision of 23.9% in the 60 days.

The company has been aggressively trying to make digital ordering more appealing to customers and more efficient for restaurants in order to drive digital sales and retain customers amid the coronavirus crisis. Another initiative that has been benefiting the company is its rewards program. It has more than 11.5 million enrolled members. Over the past month, daily sign-ups spiked nearly four-fold, which is another sign that the company’s digital platform is gaining traction. Clearly, 65% of newly-enrolled rewards members are new to the Chipotle brand, up from 51% pre-COVID-19 levels. In first-quarter 2020, digital sales soared 81% year over year to $372 million and accounted for 26.3% of sales.

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Dominos Pizza Inc (DPZ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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