Market Overview

McDonald's and Other Restaurant Stocks Worth a Look Now

Share:
McDonald's and Other Restaurant Stocks Worth a Look Now

A new report by analysts at Deutsche Bank (NYSE: DB) suggests that while many restaurants saw less-than-impressive traffic and same-store sales in the first quarter, the gradual recovery of the U.S. economy should benefit the industry. They screened for stable companies with healthy cash flow and relatively low leverage as an offset against slow growth.

Four of the stocks that made the Deutsche Bank list of restaurant stocks to buy are Buffalo Wild Wings (NASDAQ: BWLD), Del Frisco's Restaurant (NASDAQ: DFRG), McDonald's (NYSE: MCD) and Panera Bread (NASDAQ: PNRA). We take a glance at how these four stocks have fared and what analysts expect below.

In addition, the Deutsche Bank analysts also recommended coffee shop operator and coffee distributor Starbucks (NASDAQ: SBUX).

Buffalo Wild Wings

This bar and grill operator and franchiser posted better-than-expected revenue for the first quarter, though higher costs did hurt net income. Headquartered in Minneapolis, Buffalo Wild Wings sports a market capitalization of about $1.8 billion but offers no dividend.

The price-to-earnings (P/E) ratio is higher than the industry average, but the long-term earnings per share (EPS) growth forecast is about 19 percent. The operating margin is better than the industry average, and the return on equity is about 15 percent. Note that short interest is more than 19 percent of the float.

Seven of the 22 analysts surveyed by Thomson/First Call who follow this stock rate it at Strong Buy, and six others also recommend buying shares. The mean price target, or where analysts expect the share price to go, indicates almost eight percent potential upside. The Deutsche Bank target is more than 10 percent higher than the current share price.

Shares of Buffalo Wild Wings are about 20 percent higher year-to-date after all but recovering from a pullback of more than six percent in late April. Over the past six months, the stock has outperformed the broader markets and the other restaurant stocks featured here.

Del Frisco's Restaurant

This Southlake, Texas-based steakhouse operator reported better-than-expected first-quarter results and said it would open five new restaurants this year and upgrade existing locations. Del Frisco's does not offer a dividend; its market cap is about $440 million.

The long-term EPS growth forecast is more than 15 percent, but the P/E ratio is higher than the industry average. The operating margin is greater than the industry average too, though the return on equity is less than 10 percent. Short interest is more than five percent of the float.

All five of the analysts surveyed recommend buying Del Frisco's shares, with two of them rating the stock at Strong Buy. The mean price target implies about nine percent potential upside relative to the current share price. The Deutsche Bank price target is about the same.

Shares are trading more than 13 percent higher than they were at the beginning of the year, despite pulling back about two percent from the recent 52-week high. But over the past six months, this stock has underperformed competitor Ruth's Hospitality (NASDAQ: RUTH).

McDonald's

This fast-food goliath reportedly is pushing to expand its footprint in China this year, and it is said to be mulling a simplification of its crowded menu. This Oak Brook, Illinois-based company has a market cap of more than $101 billion. Its dividend yield is about 3.1 percent.

The P/E ratio is lower than the industry average but the long-term EPS growth forecast is less than nine percent. The operating margin is greater than the industry average. The number of shares sold short represents a little more than one percent of the company's float.

Seventeen of the 31 analysts polled recommend buying shares, with six on those rating the stock at Strong Buy. The analysts believe shares have a little head room, as their price target is about five percent higher than the current share price. Deutsche Bank sees about eight percent potential upside.

The share price is up more than 12 percent year-to-date, though shares have traded mostly between $100 and $103 for the past six weeks. The stock has narrowly underperformed the broader markets over the past six months, but it has outperformed competitor Yum! Brands (NYSE: YUM).

Panera Bread

This St. Louis-based bakery and cafe operator fell short of expectations in its first quarter report and said that one of its co-CEOs would transition to an executive vice chairman role later this year. The company has a more than $5 billion market cap but does not offer a dividend.

The P/E ratio is a higher than the industry average, and the long-term EPS growth forecast is more than 11 percent. The operating margin also is greater than the industry average, and the return on equity is more than 55 percent. The short interest is less than one percent of the float.

Out of 26 surveyed analysts, 17 recommend buying shares, with eight of them rating the stock at Strong Buy. The consensus price target is more than five percent higher than the current share price, but the Deutsche Bank target represents more than seven percent potential upside. Both targets are above the recent multiyear high.

Shares are trading about 14 percent higher than at the beginning of the year. The share price hit a multiyear high earlier this week. Over the past six months, the stock has outperformed competitor Einstein Noah Restaurant Group (NASDAQ: BAGL), but it has underperformed the broader markets.

 

Related Articles (BAGL + BWLD)

View Comments and Join the Discussion!

Posted-In: Buffalo Wild Wings Del Frisco's Restaurant Deutsche Bank Einstein Noah Restaurant Group McDonald'sLong Ideas Short Ideas Trading Ideas Best of Benzinga