3 Best Restaurant Stocks to Buy Now
The restaurant industry can be fundamentally changed by the coronavirus pandemic, but even with the ability to use take-out and delivery options to stay open when other businesses have been forced to close, some chains may not survive.
Others, however, are adapting to a landscape they believe will be forever altered. Shake Shackfor example, announced that it would drill holes in the sides of its burger shops to allow steering wheel and walk-in ordersbecause they think social distancing will be the norm for a long time to come.
Investors always have a menu of options at their disposal when it comes to promising restaurant chains. Here are three that seem to be among the best.
Owner of the Olive Garden Dard Restaurants (NYSE: DRI) could have been done by the pandemic, but, having built a significant off-site business before the crisis hit, he was able to recoup much of the loss of customers no longer coming to sit and eat.
Although the restaurateur’s income has been severely affected, comparable store sales down 45% in its fourth fiscal quarter, it saw its business triple to go to nearly $53 million a week on average at Olive Garden and quadruple to $28.6 million at his Longhorn Steakhouse chain.
As other restaurants head toward reopening, Darden probably won’t be able to maintain that pace of growth, but he might not lose much either, at least not at first. Shake Shack may be right that consumers will be wary at first, and for some time thereafter, of eating there.
Darden Restaurants’ off-site operations have proven themselves in times of crisis and they should serve it well afterwards as well, providing even greater additional benefits as its dining rooms fill up again.
Texas Truck Stop
Like the restaurants in Darden, Texas Truck Stop (NASDAQ: TXRH) found it necessary to quickly pivot its business model to survive, first adopting a basic take-out offering and then adding curbside pickup to enable additional contactless options.
In its earnings report for the first quarter ending March 31 (meaning it includes less than a month of widespread stay-at-home orders), revenue fell 5.5% while operating profit fell 74% from last year. Same-store sales, which had risen 8% and 4% in January and February, respectively, fell 30% in March.
At the same time, average weekly takeout sales increased four and a half times, from $9.1 million at the start of March to nearly $42 million at the end of the month.
Although Texas Roadhouse has suspended its quarterly publication Dividend paymentwhich had fallen 3.3%, this casual dining chain remains a solid restaurant that should be able to pick up where it left off.
Wendy’s (NASDAQ:WEN) might have missed analyst estimates on the high and low for the first quarter, but the results were better than what many might have expectedbecause McDonald’s revenues were dismal by comparison.
Take-out and delivery are second nature to fast-food chains like Wendy’s, which derive much of their revenue from their drive-thru counters. With 99% of its US restaurants remaining open during the crisis, Wendy’s was able to see a 1% increase in sales for the period as comps were flat (McDonald’s comps were down 3.4%).
And unlike Texas Roadhouse, Wendy’s did not suspend its dividend, which yields 2.4% per year. It has suspended buyback activity and is evaluating its investment plan with a view to cutting expenses and improving financial flexibility, but the burger shop remains a top restaurant stock investors should consider emerging from this crisis as a faithful investment in the industry.
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