US restaurant sales have returned to pre-pandemic levels. The latest estimates from the US Census Bureau showed that monthly sales for food services and drinking places totaled $86.1 billion in July, remained nearly flat from June and rose nearly 12 % year over year.
Therefore, investments in restaurant stocks with a favorable Zacks rating should be cautious. Four of these actions are — Arcos Dorados Holdings Inc.. ARCO, Potbelly Corp. PBPB, Ruth’s Hospitality Group Inc. RUTH, Cracker Barrel Old Country Store Inc. CBRL and First Watch Restaurant Group Inc. FWRG.
Impressive turnaround in American restaurants
The US restaurant industry is showing signs of impressive recovery in 2022 after two years of the pandemic. This industry has suffered major shake-ups during the coronavirus outbreak due to shutdowns and other restrictive norms to maintain social distancing.
However, the massive implementation of COVID-19 vaccines by the US government in 2021 and the full reopening of the economy has given the restaurant and bar industry a major boost.
The restaurateurs’ focus on digital innovation, its sales development initiatives and its cost reduction efforts acted as major catalysts. With the growing influence of the Internet, digital innovation has become the need of the hour. Large restaurant chains are constantly partnering with delivery channels and digital platforms to drive incremental sales.
The restaurant industry is gradually seeing its sales improve. According to industry body, the National Restaurant Association (NRA), restaurant and bar industry sales are expected to reach $898 billion in 2022. The improvement can be attributed to improving fundamentals such as as changes in business processes, staffing, floor plans and technology. .
Industry participants are hiring, indicating that the industry is finally coming out of the woods. The NRA has forecast the industry to hire 400,000 people, bringing its total employment to 14.9 million by the end of 2022.
The restaurant industry consistently benefits from surging off-site sales, which primarily includes delivery, take-out, drive-thru, catering, meal kits, and off-site options, such as kiosks and food trucks, due to the coronavirus pandemic. According to the NRA, more than 60% of restaurant food is consumed offsite.
By 2025, offsite is expected to account for approximately 80% of industry growth. The idea of providing offsite offerings with connected curbside service consistently garners positive customer feedback.
Our top picks
We narrowed our search to five restaurant stocks that have strong growth potential for the remainder of 2022. These stocks have seen a positive revision in earnings estimates over the past 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks over the past three months.
Image source: Zacks Investment Research
Belly owns, operates and franchises Potbelly Sandwich Shops. PBPB operates on-site food consumption establishments to offer sandwiches, salads, soups, chili, fries, cookies, ice cream and smoothies. Potbelly serves customers all over the United States.
Potbelly has an expected earnings growth rate of over 100% for the current year. The Zacks consensus estimate for the current year has improved by more than 100% in the past 60 days.
Arcos Dorados operates as a franchisee of McDonald’s with its operations spread across Brazil, the Latin America North division, Latin America South division and the Caribbean division. ARCO also operates quick service restaurants in Latin America and the Caribbean.
Arcos Dorados operates in territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curaçao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Uruguay, the US Virgin Islands of St. Croix and St. Thomas and Venezuela.
Arcos Dorados has an expected earnings growth rate of over 100% for the current year. The Zacks consensus estimate for the current year has improved by 11.4% over the past 60 days.
Ruth’s Home Group is the largest gourmet steakhouse company in the United States, measured by the total number of company-owned and franchise-owned restaurants.
RUTH develops, operates and franchises fine dining restaurants under the Ruth’s Chris Steak House name. Ruth’s Hospitality Group restaurants provide food and beverages to special occasion diners and frequent customers, as well as business customers.
RUTH forecasts a profit growth rate of 24.8% for the current year. The Zacks consensus estimate for the current year has improved by 8.1% over the past 60 days.
Cracker Barrel Old Country Store is engaged in the ownership and operation of full-service restaurants with a restaurant and a retail store in the same unit. The restaurants serve home-style country fare, including meatloaf, homemade chicken meatballs as well as his signature cookies using an old family recipe.
Retail stores offer unique gifts and personal pleasures. CBRL operates through two restaurant brands – “Cracker Barrel Old Country Store” and “Holler & Dash Biscuit House”. Cracker Barrel Old Country Store also has casual Holler and Dash restaurants.
CBRL forecasts a 2.2% profit growth rate for the current year (July 2023). The Zacks consensus estimate for the current year has improved 1.5% over the past 60 days.
First Watch Restaurant Group is a daytime restaurant concept serving cooked-to-order breakfast, brunch and lunch using fresh ingredients. FWRG offers pancakes, omelettes, sandwiches and salads, as well as specialties like Quinoa Power Bowl, Avocado Toast and Chickichanga.
FWRG has an expected earnings growth rate of over 100% for the current year. The Zacks consensus estimate for the current year has improved by 25% over the past 7 days.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.
This company could rival or surpass other recent Zacks stocks that are expected to double, such as Boston Beer Company which climbed +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year. Top >>
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Cracker Barrel Old Country Store, Inc. (CBRL): Free Stock Analysis Report
Ruth’s Hospitality Group, Inc. (RUTH): Free Inventory Analysis Report
Potbelly Corporation (PBPB): Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO): Free Stock Analysis Report
First Watch Restaurant Group, Inc. (FWRG): Free Stock Analysis Report
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