5 Restaurant Stocks That Could Attract Merger Or Takeover Interest Amid Wendy's-Trian News

Zinger Key Points
  • Better burger chain BurgerFi could be attractive for a restaurant owner looking for exposure in the fast casual portion of the sector.
  • Brinker International recently announced the pending retirement of its CEO, which could open the door to an acquisition or merger.

A top fast food restaurant saw shares jump on rumors of a potential takeover by a leading investor. The move would follow up a busy 2021, which saw several large transactions in the space. Here’s a look at how merger and acquisition activity could shape up in the restaurant sector.

What Happened: A new filing from Wendy’s Co WEN showed that Trian Fund Management owns 19.4% of Wendy’s with its partners. The fund run by Nelson Peltz said in the filing it will explore a transaction that could be a merger or acquisition.

A transaction that includes Wendy’s would be one of the biggest in the restaurant industry in the past few years, with a current market capitalization of $3.5 billion.

Other restaurant stocks jumped Wednesday on the heels of the potential Wendy’s deal, with more possible moves happening down the road.

In 2021, Jack in the Box JACK acquired Del Taco Restaurants, a publicly traded Mexican cuisine company.

Restaurant Brands International QSR acquired privately held Firehouse Subs.

Here’s a look at some restaurant stocks that could attract interest for mergers or acquisitions.

1. Papa Johns: Pizza chain Papa Johns International PZZA has been a rumored takeover candidate for years, with its former founder even suggesting he would buy the company out. The chain is often mentioned since pizza is a portion of the restaurant sector that has seen decent growth despite being a highly competitive market.

In the recently reported first quarter, Papa Johns reported revenue of $542.7 million, up 6% year-over-year. Along with the revenue growth, the chain reported it opened 62 net new units in the quarter and raised its restaurant opening plans. For fiscal 2022, Papa Johns sees opening 280 to 320 units. Going forward, the chain is now targeting 6% to 8% annual net unit growth. This includes a deal to open over 1,350 stores in China through a new partnership.

Papa Johns ended the first quarter with 3,127 restaurants in the U.S. and 2,170 in international markets. The company has 608 domestic company owned locations, with the majority of the rest franchised.

2. Bloomin’ Brands: Owner of the Outback Steakhouse restaurant brand, Bloomin’ Brands BLMN has been another popular buyout target over the years. The company’s portfolio of casual dining brands could be attractive to a private equity investor. Bloomin’ Brands has over 1,450 restaurants in 47 states and 17 countries.

Bloomin’ Brands reported revenue of $1.1 billion, up 15.5% year-over-year in the recent quarter, with comparable sales up 36% in the U.S. The company raised its full year outlook on the heels of the report.

Bloomin' Brands has 1,163 total company owned locations and 287 franchised locations, which could be an opportunity to unlock value for a new buyer down the road.

Shares trade at $19.05, near the bottom of the 52-week range of $17.27 to $30.40. At a market capitalization of $1.5 billion and a beaten down share price, this could be the right time for someone to make a play on the company.

3. Brinker International: Owner of Chili’s and Maggiano’s, Brinker International EAT, recently announced its CEO Wyman Roberts will be retiring in June. Roberts led the company since 2013 and spent over 17 years with Brinker. The transition of top management can sometimes lead to different thinking or ideals, including whether pursuing acquisitions or mergers could make sense.

Brinker has over 1,600 restaurants in 29 countries and also launched several virtual brands recently, including Its Just Wings.

Related Link: Wendy's Surges As Largest Shareholder Expresses Intent To Take Over 


4. BurgerFi: Better burger chain BurgerFi BFI went public via SPAC merger in late 2020. The company could be an attractive play for a restaurant owner looking for exposure in the fast casual portion of the sector, or for a relatively small chain with room for expansion.

BurgerFi acquired Anthony’s Coal Fired Pizza & Wings in late 2021 to diversify its business, which could provide some value unlocks for a potential experience company.

The company opened six new BurgerFi locations in the first quarter and is targeting 15 to 20 new locations for the fiscal year.

BurgerFi has 124 locations, with 97 franchised locations and 27 company owned. The company also owns 61 other restaurants outside the BurgerFi brand.

The company is well known in some states and was the former Fast Casual top brand for 2021 and among the nation’s fastest growing restaurants in the better burger category.

5. Potbelly Corp: Sandwich shop brand Potbelly Corp PBPB went public in 2013 at $14 a share. After a strong first day of trading, shares have fallen hard and now trade at $5.17. With a market capitalization of $147 million, the chain could look attractive for a takeover or being combining with another brand at a premium.

In the first quarter, Potbelly reported same-store-sales growth of 24.4%, which marked the fourth consecutive quarter of positive SSS. Strong digital growth led the way, which could be a sign of growth to come. Total revenue was up 26% in the first quarter at $98.2 million.

The company has over 400 company owned stores, which could make the company a play on unlocking value for a new owner or partner to move to a franchise model.

Disclosure: Author is long BFI shares.

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Posted In: Long IdeasM&APenny StocksRestaurantsTrading IdeasGeneralAcquisitionsMergersNelson Peltzprivate equityRestaurant stocksTrian Fund Management
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