The pandemic has left a long-lasting impact on the restaurant industry. The complete lockdown and strict social distancing norms severely impacted business operations in the first three months of the pandemic. According to Association research, tourism-related spending in restaurants were only 19% of sales in the fine dining segment during the June – November 2020 period, compared to an average of 41% in a typical year before COVID-19.
However, the arrival of vaccines has made investors optimistic about the industry’s recovery in 2021. The distribution of the Covid-19 vaccine jointly developed by Pfizer Inc. (PFE) and BioNTech (BNTX) has started across the country, while Moderna Inc. 's vaccine (MRNA) recently received FDA approval . Moreover, the U.K. and the Indian governments have also approved the vaccine developed by Oxford University and AstraZeneca (AZN). These vaccines are claimed to be effective against a new, more contagious, strain of the virus as well.
As a result, investors are optimistic about the recovery of the industry. Companies like Restaurant Brands International Inc. (QSR), Brinker International, Inc. (EAT), Darden Restaurants, Inc. (DRI), and Good Times Restaurants Inc. (GTIM) are well-positioned to gain when the industry witnesses a solid rebound after mass vaccination.
Restaurant Brands International Inc. (QSR)
QSR is a quick service restaurant company operating under three brands: Tim Hortons (TH), Burger King (BK), and Popeyes (PLK).
On October 27th, QSR announced that it will modernize the drive-thru experience at more than 10,000+ North American restaurants by mid-2022, by installing more than 40,000 digital screens with powerful 'predictive selling' technology. This will offer integration with restaurant loyalty programs and remote, contactless payment to support a better and more modern guest experience.
QSR’s revenues increased 27.6% sequentially to $1.34 billion in the third quarter that ended September 2020. Its adjusted EBITDA rose 56.7% sequentially to $561 million, while its EPS improved 106.1% sequentially.
Analysts expect QSR’s revenue to grow 14.4% year-to-year in the fourth quarter that ended December 2020 to $1.15 billion. The consensus EPS estimate of $0.56 for the fourth quarter (ended December 2020) indicates an improvement of 55.6% year-over-year. The company has an impressive earnings surprise history as it beat the Street EPS estimates in each of the trailing four quarters. QSR has gained 11.9% over the past six months.
How does QSR stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
The stock is currently ranked #5 of 50 stocks in the Restaurants Industry.
Brinker International, Inc. (EAT)
EAT is a casual dining restaurant company operating under the brands, Chili’s Grill & Bar and Maggiano’s Little Italy. The Company's Chili's operates Bars & Grill category of casual dining, while its Maggiano's restaurants feature individual and family-style menus, along with providing banquet facilities.
Chili's continues to outperform the casual dining industry with growing market share. According to a recent data from Knapp-Track, Chili's comparable restaurant sales have been on average 12% better than comparable restaurant sales for the casual dining industry during its second quarter that ended December 2020, and its restaurant traffic has been on average approximately 16% better than comparable restaurant traffic in the same industry over the same period.
EAT’s revenues increased 31.4% sequentially to $740.10 million in the first quarter that ended September 23rd, 2020. Its non-GAAP operating income rose 139.2% sequentially to $84.20 million, while non-GAAP EPS improved 131.8% sequentially to $0.28.
Analysts expect EAT’s revenues to grow 7.3% for the current year ending June 2021 to $3.30 billion. The consensus EPS estimate of $0.56 for the current year (ending June 2021) indicates a 53.8% improvement year-over-year. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The stock has gained 135.7% over the past six months.
It is no surprise that EAT is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is currently ranked #7 of 50 stocks in the same industry.
Darden Restaurants, Inc. (DRI)
DRI is a full-service restaurant company operating more than 1,800 restaurants in the United States and Canada. The company owns a portfolio of differentiated brands that include Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V's.
DRI’s sales increased 8.5% sequentially to $1.66 billion in the second quarter that ended November 29th, 2020. Its adjusted EBITDA increased 11.8% sequentially to $206.30 million, while adjusted EPS increased 200% sequentially to $1.12.
Analysts expect DRI’s revenues to increase 55.3% year-to-year to $1.97 billion in the fourth quarter ending May 2021. The consensus EPS estimate of $3.26 for the ongoing year (ending May 2021) indicates a 4.2% increase year-over-year. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The stock has gained 57.2% over the past six months.
DRI’s POWR Ratings reflects this promising outlook. It is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank and a “B” for Peer Grade. It is ranked #6 in the same industry.
Good Times Restaurants Inc. (GTIM)
GTIM is a quick service restaurant concept operating through two segments: Good Times Burgers and Frozen Custard restaurants, and Bad Daddy's Burger Bar restaurants. Bad Daddy’s Burger Bar is a full-service “small box” restaurant concept featuring a chef-driven menu, while Good Times Burgers & Frozen Custard is an upscale quick-service drive-through dining restaurant.
GTIM’s income from operations increased 150.4% year-over-year to $2.02 million in the fiscal fourth quarter that ended September 29th, 2020. Its adjusted EBITDA increased 97.2% year-over-year to $2.90 million over the same period, while EPS improved 136.4% year-over-year to $0.12.
Analysts expect GTIM to grow at a rate of 30% per annum over the next five years. GTIM has gained 131.7% over the past six months.
GTIM is rated “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade, Peer Grade, and Industry Rank and a “B” for Buy & Hold Grade. It is ranked #11 in the same industry.
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QSR shares were trading at $59.78 per share on Monday afternoon, down $1.33 (-2.18%). Year-to-date, QSR has declined -2.18%, versus a -1.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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