7 of the Best Restaurant Stocks to Buy in 2019
Barclays is bullish on these restaurant stocks.
After a surprisingly strong December U.S. jobs report, market fears about a 2019 recession are looking a bit overblown. In fact, Barclays is predicting a favorable consumer backdrop for restaurant stocks this year. However, with interest rates on the rise and diminishing returns from the 2018 tax cuts, Barclays says selection within the group will be critical. The firm favors staple quick-service restaurants over discretionary casual diners in what will likely be a year of declining same-store sales growth and rising labor costs. Here are food stocks recommended by Barclays.
Dunkin' Brands Group (ticker: DNKN)
Dunkin' Brands is a prime example of the type of restaurant stock that could see upside to its valuation in 2019 despite the impact of rising costs. Dunkin's quick-serve coffee brand is a leader in an attractive growth market. In addition, its 100 percent franchised business model allows the company to generate best-in-class margins with relatively little incremental investments. Analyst Jeffrey Bernstein is projecting $2.82 in full-year earnings per share, implying upside to the stock's current valuation. Barclay's has an "overweight" rating and $79 price target for DNKN stock.
Bloomin' Brands (BLMN)
Bernstein says Bloomin' Brands could continue its late 2018 momentum if the U.S. economy continues to expand further in 2019. In the most recent quarter, Bloomin' exceeded consumers' expectations by reporting 2.9 percent same-restaurant sales growth, led by 4.6 percent growth in its Outback Steakhouse franchise. Bloomin' also has a potential positive catalyst on the horizon in the near term, with the company's first investor day event since 2014 scheduled for early 2019. Barclays is expecting a slight EPS beat of $1.50 in 2019. Barclays has an "overweight" rating and $24 price target for BLMN stock.
Chipotle Mexican Grill (CMG)
Chipotle stock finally bounced back during a transitional year for the company in 2018, and expectations for new CEO and former Taco Bell head Brian Niccol are high. Niccol is already implementing new growth initiatives, such as a revamped loyalty program, drive-up windows and new menu items, but he is also focusing on improving core operations, such as marketing and throughput. With the stock up 44 percent in the past year, Bernstein is staying on the sidelines for now. Barclays has an "equal weight" rating and $450 price target for CMG stock.
McDonald's Corp. (MCD)
Bernstein says McDonald's is Barclay's top overall 2019 stock pick in the restaurant space. He says MCD stock offers the most compelling valuation among its fast food peers, and should be able to generate 3 percent global same-restaurant sales growth for the foreseeable future. In addition, the company's 95 percent mix of franchise restaurants helps insulate the company in the event of a downturn and allows for cost savings, higher cash flow and capital returns, which should total $25 billion from 2017 to 2019. Barclays has an "overweight" rating and $208 price target for MCD stock.
Wendy's Co. (WEN)
Following McDonald's, Bernstein says Wendy's is his favorite fast food stock. Wendy's has been focused on growing its traffic over the past several years rather than expanding its margins. But management has said it is closely watching the success of competitors like McDonald's in marketing higher priced items to existing customers. Wendy's spooked some investors when it dropped its 2020 free cash flow target of $300 million in November, but management said the decision is part of its reassessment of its international growth strategy. Barclays has an "overweight" rating and $19 price target for WEN stock.
Darden Restaurants (DRI)
Bernstein says Darden is his top stock pick among U.S. casual diner stocks and would likely lead the group if the economy strengthens further. Despite its higher comp and unit growth, Bernstein says DRI stock trades mostly in line with the valuations of its smaller peers. In the most recent quarter, Darden reported 2.1 percent overall same-restaurant sales growth led by 3.5 percent growth from Olive Garden and 2.9 percent growth from LongHorn Steakhouse. Bernstein is projecting 2019 EPS of $6.30. Barclays has an "overweight" rating and $127 price target for DRI stock.
Texas Roadhouse (TXRH)
Top-line growth has slowed for casual dining restaurants, but Texas Roadhouse has outclassed its peer group in sales growth. In the most recent quarter, TXRH reported 5.5 percent growth in company-owned same-restaurant sales and 4.2 percent growth in franchise restaurants. Even if same-store sales growth slips to the 3.5 percent range, TXRH will still maintain a wide performance gap versus its peers. Bernstein is projecting EPS will grow by 16.7 percent from $2.10 in 2018 to $2.45 in 2019. Barclays has an "overweight" rating and $65 price target for TXRH stock.
The best restaurant stocks of 2019.
Here is Barclays' list of some of the best restaurant stocks to buy:
-- Dunkin' Brands Group (DNKN)
-- Bloomin' Brands (BLMN)
-- Chipotle Mexican Grill (CMG)
-- McDonald's Corp. (MCD)
-- Wendy's Co. (WEN)
-- Darden Restaurants (DRI)
-- Texas Roadhouse (TXRH)
