Markets

Will Q4 Earnings Be Sweet or Sour for the Restaurant ETF?

The restaurant industry is presently bland as evident by the Zacks industry rank which is in the bottom 33% segment. However, a key player of the industry, McDonald's MCD has surpassed the Zacks Consensus Estimate for both earnings and sales. Considerable operational improvement overseas helped the quick-service restaurant behemoth to beat on both lines.

This is just the start of the earnings season for the restaurant industry which looks moderately upbeat as of now despite sluggish trends after a prolonged up phase. Let's take a look at some of the restaurant companies' earnings in detail.

As we have a pure-play ETF on the restaurant industry, namely USCF Restaurant Leaders FundMENU , taking an investment decision becomes easier (see all consumer discretionary ETFs here ).

A Bite out of Surprise Prediction

Yum Brands Inc.YUM - expected to come up with earnings on February 8 - has a Zacks Rank #3 (Hold) and an Earnings ESP of +2.82%. This strengthens the chances of an earnings beat. The Zacks Consensus Estimate for the upcoming quarter is $0.71, unchanged over the past two months. The stock has a moderate VGM (Value, Growth and Momentum) Style Score of C. YUM is the second holding of MENU with 4.43% weight.

Starbucks CorpSBUX - expected to report on January 26 after market close - has a Zacks Rank #3 and an Earnings ESP of -1.92%, making surprise prediction difficult. The Zacks Consensus Estimate for the upcoming quarter is $0.52, same over the past two months. Further, the stock has a favorable VGM Style Score of B. SBUX is the fourth holding of MENU with 4.43% weight.

Papa John's International Inc.PZZA has a Zacks Rank #2 (Buy) and an Earnings ESP of 0.00%, putting the odds of an earnings beat in jeopardy. The stock has a favorable VGM Style Score of B. The earnings surprise track over the past four quarters is good with an average surprise of positive 11.31%. The company witnessed positive earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. PZZA takes the sixth spot in MENU with 3.33% weight.

Panera Bread Company PNRA is expected to release its earnings report on February 7. It has a Zacks Rank #3 and an Earnings ESP of -0.50%, again making the surprise prediction difficult. The Zacks Consensus Estimate has been the same over the last two months. It delivered positive earnings surprises in the trailing four quarters, with an average beat of 3.39%. The stock has a VGM score of 'D'. PNRA has 3.33% weight in the fund.

Jack in the Box Inc.JACK is expected to release its earnings report on February 22. It has a Zacks Rank #3 but an Earnings ESP of -1.61%, again putting the odds of earnings beat at risk. The company saw negative earnings estimate revision of a penny over the past two months for the to-be-reported quarter. It delivered positive earnings surprises in three of the last four quarters, with an average beat of 12.94%. The stock has a VGM score of 'C'. JACK has 3.33% weight in the fund.

Bottom Line

From the above-said discussion, we understand the earnings picture is not going to be too bright this season. The Current Situation Index for the sector was 99.7 in November which is not quite an optimistic picture. However, the Expectations Index crossed the mark of 100 and came at 101.6 in November. Investors should note that a figure higher than 100 shows signs of expansion.

In such a scenario, investors with high hopes on a gradually recovering Expectations Index can try investing in MENU, otherwise the earnings and fundamentals do not look too meaty (read: Top 5 New Niche ETFs of 2016 ).

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Panera Bread Company (PNRA): Free Stock Analysis Report

Yum! Brands, Inc. (YUM): Free Stock Analysis Report

Starbucks Corporation (SBUX): Free Stock Analysis Report

Jack In The Box Inc. (JACK): Free Stock Analysis Report

Papa John's International, Inc. (PZZA): Free Stock Analysis Report

USCF-RSTRNT LDR (MENU): ETF Research Reports

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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.


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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