Barclays Predicts Restaurant Rebound

In a report published Monday, Barclays analyst Jeffrey Bernstein explored the U.S. Restaurant sector, noting that outperformance relative to the S&P 500 has been "muted" in the second quarter and will continue for the near-term, before outperformance resumes later on in the year.

"Bears will highlight valuations near peaks, and comps easing from the spike to start '15," Bernstein wrote. "Bulls will highlight comps stable of late, much improved from ‘14, and expectation is for further improvement with benefit from employment and confidence."

Bernstein continued that the restaurant group as a whole will post 15 percent earnings per share growth, easing from the 21 percent growth seen in the previous quarter but in-line with the second half of 2014. The analyst added that the primary "pushback" remains valuation with absolute multiples "aggressive" versus their historic level.

Top Picks

Bernstein suggested that investors should "opt for discretionary over defensive." He added that his top pick in the sector is Panera Bread Co PNRA as the company is in the early stages of a "fundamental" turnaround, while shares are trading at a "compelling" valuation relative to its peers with a favorable risk to reward profile.

Shares remain Overweight rated with an unchanged $210 price target.

Within the "quick serve" sub-space, Dunkin Brands Group Inc DNKN remains a "strong long-term US unit growth story" and is well positioned in the beverage and breakfast category. The company will also benefit from an improving consumer environment, stability of an approximately 99 percent franchised model and the ability to maintain an elevated leverage for share repurchases and dividends.

Shares remain Overweight rated with an unchanged $59 price target.

Finally, Bernstein named Bloomin' Brands Inc BLMN as a top pick within the
"casual dining" sub-space as the company's earnings per share is expected to benefit from continued comp and unit growth outperformance. At the same time, the company continues its "aggressive" cost saving and margin initiatives.

Shares remain Overweight rated with an unchanged $30 price target.