According to the National Restaurant Association, the American restaurant industry recorded a total sales of $85 billion in Maywhich is 0.7% higher than the previous month’s sales volume, even after facing price increases.
The Restaurant Performance Index (RPI), which tracks the health of the restaurant industry in the United States, arrived at 102.6 for the same month, which is 0.5% above April’s level. Additionally, restaurateurs are optimistic about their future sales.
According to the Bureau of Labor Statistics, the cost of out-of-home food rose 7.4% in the 12 months to May, but in-home food prices rose even faster, reaching 11.9%. Catering companies also expect people will dine out as long as grocery prices rise faster.
Quick Service Restaurant (QSR) Industry Expected to Grow at an accelerated CAGR of 3.6% until 2025. North America should generate 43% of the growth.
Given the promising market outlook, fundamentally sound restaurant stocks Arcos Dorados Holdings Inc. (ARCO), Denny’s Corporation (DENN) and Good Times Restaurants Inc. (GTIM) could be solid additions to his portfolio.
Arcos Dorados Holdings Inc. (ARCO)
ARCO, based in Montevideo, Uruguay, operates as McDonald’s Corporation (MCD) franchise restaurant. The Company has the exclusive right to own, use and license McDonald’s restaurants in Latin America and the Caribbean.
In May, ARCO announced its intention to buy back $123 million of its outstanding 6.625% top grades due 2023. Earlier in April, the company announced the pricing of $350 million aggregate principal amount of 6.125% senior sustainability notes due 2029. Proceeds from the offering were to be used by the company to finance takeover bids and for corporate purposes.
In terms of price/sales futures, ARCO is trading at 0.46x, 44.6% below the industry average of 0.84x. Its EV/Futures multiple of 0.89 is 11.4% below the industry average of 1.01.
ARCO’s total revenue increased 40.9% year-over-year to $790.68 million in the first quarter ended March 31. Its adjusted EBITDA increased 228% from the prior year’s value to $78.50 million, while its net profit improved 183% year-on-year. at $24.63 million.
The company’s EPS increased 185.7% from the same period last year to $0.12. ARCO’s net profit has grown at a CAGR of 27.2% and its EPS at a CAGR of 27.7% over the past three years.
The consensus EPS estimate of $0.04 for the fiscal second quarter (ended June 2022) indicates a 118.7% year-over-year improvement. The consensus revenue estimate of $728.29 million for the same quarter reflects a 22.9% increase over the same period last year.
The company has an impressive track record of earnings surprises, as it beat consensus EPS estimates in each of the past four quarters.
The stock has gained 13.1% over the past year and 18.5% since the start of the year to close its last trading session at $6.91.
ARCO POWR Rankings reflect this promising prospect. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. POWR ratings rate stocks on 118 different factors, each with its own weighting.
ARCO is rated A in Sentiment and B in Growth and Value. In category B Restaurants industry, it is ranked #2 out of 53 stocks.
To see additional POWR ratings for Momentum, Stability, and Quality for ARCO, Click here.
Denny’s Corporation (DENN)
DENN operates chains of full-service restaurants under the Denny’s brand. The company is the worldwide owner of several franchise, licensee and corporate restaurants.
In June, DENN announced its commitment to the Pathways to Black Franchise Ownership program created by the Multicultural Foodservice & Hospitality Alliance (MFHA). The company is expected to help the MFHA achieve its goal of creating 100 black-owned franchises by 2023.
DENN’s P/E multiple of 11.61 is 2.4% below the industry average of 11.89.
During the first quarter ended March 30, DENN’s total operating revenue increased 28% year-on-year to $103.11 million. Its operating profit rose 141.3% year-over-year to $13.31 million.
The company’s adjusted net earnings improved 1,448.6% from the prior year quarter to $6.98 million, while adjusted net earnings per share were $0.11, up 1,000% year over year. DENN’s net income and EPS have grown at a CAGR of 15.8% over the past three years.
Analysts expect DENN’s revenue for the second quarter (ending June 2022) to be $112.43 million, indicating 5.9% year-on-year growth. other. The company’s EPS for the same quarter is expected to be $0.14.
DENN stock gained 4.5% during the day to close its last trading session at $9.07.
According to POWR Ratings, DENN has a B rating for Growth, Value and Quality. In the restaurant industry, it is ranked #10.
Beyond what we’ve stated above, we’ve also assigned DENN ratings for Momentum, Stability, and Sentiment. Get all the DENN notes here.
Good Times Restaurants Inc. (GTIM)
GTIM engages in the restaurant business in the United States as the operator of the upscale fast-food drive-thru restaurant Good Times Burgers & Frozen Custard and the upscale casual full-service restaurant Bad Daddy’s Burger Bar.
In 12-month PEG terms, GTIM is trading at 0.01x, 92.3% below the industry average of 0.14x. Its 12-month P/E multiple of 2.77 is 75.3% below the industry average of 11.25.
For the second quarter ended March 29, GTIM’s total net income increased 15.1% to $33.60 million. This can be attributed to a 15.1% increase over the year-ago quarter in restaurant sales to $33.36 million.
GTIM’s revenue grew at a CAGR of 8.2% over the past three years, while its EBIT grew at a CAGR of 242.2% over the same period. Its EBITDA has grown at a CAGR of 26.2% over the past three years.
GTIM stock fell 5.3% during the day to close its last trading session at $2.85.
GTIM’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of A, which is equivalent to Strong Buy in our POWR rating system.
GTIM has an A rating for value and a B for growth, momentum, sentiment and quality. In the restaurant industry, it is ranked #1. Click here to see additional POWR ratings for GTIM (stability).
ARCO shares were trading at $6.41 per share on Tuesday afternoon, down $0.50 (-7.24%). Year-to-date, ARCO has gained 11.16%, compared to a -18.98% rise in the benchmark S&P 500 over the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. After…