4 Restaurant Stocks To Feast On

Spring has arrived, and people are starting to come out of their hibernation from the long cold winter. After months of being inside, they are hungry, and looking to do something to rid themselves of their sever cabin fever. What better way to relieve both problems, than to visit a local Restaurant.

The Retail Restaurant segment has posted strong performances in Q1 15, and they are expected to continue to improve throughout Q2 2015. The segment is being helped by persistently low gas prices, an improving economy, improving jobs market, and solid SSS (Same Store Sales) comparisons for the first half of 2015.

In January the Retail Restaurant casual dining segment saw an improvement of 5.1% in SSS, and +2.4% SSS for full first quarter 2015. Historically, the first quarter of any year is very difficult for the segment due to the winter, but the +2.4% was the best performance in almost a full decade. So while people were digging snow tunnels in the Northeast US, many people were dining out elsewhere in the US. Given the improving weather, and strong SSS for the segment, it is not surprising to see that there are high expectations for the segment as a whole.

Which Restaurant Companies to Pick

Cracker Barrel (NASDAQ:CBRL) holds a Zacks Rank #1 (Strong Buy) opened in 1969 in Lebanon Tennessee with a mission to please people. The company has since grown to operate over 600 locations in 42 states.

In the most recent quarter, Cracker Barrel produced their 13th consecutive quarter of SSS outperformance against their peer group. Further, since October of 2014 (the beginning of the gas price drop), the company’s share price is up 40% against 8% for the S&P 500.

Over the past 60 days Cracker Barrel has seen their estimates rise for Q3 15, Q4 15, FY 15 and FY 16; Q3 15 increased from $1.33 to $1.38, Q4 15 rose from $1.73 to $1.84, FY 15 jumped up from $6.15 to $6.57, and FY 16 rose from $6.68 to $7.10.

As for earnings results, Cracker Barrel has been hitting home run after home run, they have beaten the Zacks Consensus Earnings Estimates for the past four consecutive quarters. They have and average posted a Positive Earnings Surprise of +8.47%, indicating that not only do they beat the estimate, they beat it by a sizable amount.

Cracker Barrel reports FQ3 earnings on 5-27-15.

Darden Restaurants Inc (NYSE:DRI) holds a Zacks Rank #1 (Strong Buy) employees more than 150,000 people and through its subsidiaries owns and operates more than 1,500 restaurants. Darden owns and operates major chain restaurants like, Olive Garden, Longhorn Steak House, The Capital Grille, and the Yard House which when combined serves over 320 million meals a year.

In the most recent quarter, Darden said they expect to realize $30million in cost savings, with half the savings coming from SG&A, and the other half coming from supply chain expenses. Savings are expected to be $40-$50 million for 2016. Further, the company has been able to reduce expenses for labor, restaurant expenses, G&A, and marketing. Moreover, the company has listed 31 properties for sale leaseback in order to cut costs further. Theses cost cutting savings, and property sales are expected to positively impact both the top and bottom lines in the coming quarters.

Over the past 60 days, Darden has seen their earnings estimates increase for Q4 15, FY 15, Q1 16, and FY 16; Q4 15 increased from $$0.91 to $0.92, FY 15 rose from $2.30 to $2.47, Q1 16 increased from $0.51 to $0.54, and FY 16 jumped from $2.63 to $2.81.

During the restaurant uptick from October 2014 to the present, Darden has posted two quarters of solid earnings beats, and is expected to post another strong result in June for Q4. Over the last two quarters Darden has posted a Positive Average Earnings Surprise of 10.78%.

Darden Restaurants (NYSE:DRI) reports Q4 15 results on 6-19-15.

Ruby Tuesday Inc (NYSE:RT) holds a Zacks Rank #1 (Strong Buy) started with one location in 1972 near the University of Tennessee campus, and has grown to nearly 800 restaurants across the US and the Globe. From one location the company grew to become part of a large public food services company in 1982, and then became its own independent company that went public in 1996.

Recently, the board of directors began a brand transformation which focused on reclaiming Ruby Tuesday’s heritage as a casual, affordable, energetic, and approachable brand. The goal is to be more broadly appealing and appropriate for a wider variety of dining occasions.

According to JJ Buettgen, Chairman of the Board, “We have made meaningful progress on multiple fronts since we began our brand transformation journey. We are pleased with our cost savings actions and resulting bottom line improvements that have strengthened our business model, improved restaurant level margins, and reduced selling, general and administrative expenses.”

Over the past 30 days, Ruby Tuesday has seen their earnings estimates rise for Q4 15, FY 15, Q1 16, and FY 16; Q4 15 increased from $0.06 to $0.08, FY 15 rose from -$0.17 to -$0.12, Q1 16 increased from -$0.06 to -$0.04, and FY 16 jumped from -$0.07 to $0.01.

While Ruby Tuesday has missed 2 out of the last 4 Zacks Earnings Estimates, they have posted a four quarter average Positive Earnings Surprise of +24.63%.

Ruby Tuesday reports Q4 15 results on 8-4-15

Sonic Corp (NASDAQ:SONC) holds a Zacks Rank #1 (Strong Buy) can trace its history back to 1953 to a small root beer stand called Top Hat in Shawnee, Oklahoma. Then in 1959, after opening several more Top Hat locations, owners christened the existing locations as Sonic to match their slogan of “Service at the Speed of Sound.”

In the most recent earnings announcement, management saw same store sales of +11.5%, which was the highest quarterly gain in the company’s history. They also saw Q2 15 EPS grow 96% year over year, and saw traffic increase 7.5% year over year at company drive-ins. The impressive growth is due to new technology, new product line, and the company benefited from continued low gas prices. Due to these strong numbers management guided EPS growth of 25-27% year over year for FY 15.

Over the past 60 days, Sonic has seen their earnings estimates rise for Q3 15, Q4 15, FY 15, and FY 16; Q3 15 increased from $0.34 to $0.36, Q4 15 rose from $0.40 to $0.42, FY 15 jumped from $1.03 to $1.09, and FY 16 increased from $1.20 to $1.25.

Sonic has beaten the Zacks Consensus Earnings and Revenue Estimates for the past 4 consecutive quarters, posting an average Positive Earnings Surprise of +6.83%.

Sonic Corp reports Q3 15 results on 6-22-15.

Bottom Line

After a solid Q1 15 SSS performance for the sector, expectations are high for Q2 15, and several companies are poised to take advantage of the increased sales. Therefore, a combination of a Zacks Rank #1 plus the positive industry news should yield a solid investment for the coming quarter.

Original Post