4 Buy-Rated Restaurant Stocks to Buy for a Potential 2021 Economic Recovery

Most restaurants have revamped their operational models since the coronavirus pandemic  to offset some of the losses they incurred during the lockdown phases of the health crisis. With additional hygiene measures,  online delivery, and drive-thru facilities, most companies, particularly those in the fast-food sector, managed to stay in business and  generate profits. Throughout the pandemic, major restaurant chains have streamlined their menus to stand out as a differentiator versus their competitors. They have also been reducing items outside of their core menus to improve efficiency.

Following the arrival of coronavirus vaccines, the broader industry has stabilized as consumers have slowly returned to restaurants as restrictions on dine-in service have been lifted. With a wide range of fiscal stimulus benefits to drive the consumer spending currently being negotiated by the government, the restaurant sector is well positioned to return to pre-pandemic levels relatively quickly. Fast food restaurants have generally been faring well because these food chains already have a well-established delivery and drive-thru systems.

Because a vaccine-driven V-shaped economic recovery is expected this year, McDonald's Corporation (MCD), Yum! Brands, Inc. (YUM), Papa John's International, Inc. (PZZA) and Jack in the Box Inc. (JACK) hold attractive upside potential we believe.

McDonald's Corporation (MCD)

MCD, a leading global foodservice retailer, operates and franchises some 39,000 McDonald's restaurants worldwide . Its target market  includes the United States and international lead markets, high growth markets, foundational markets and corporations.

In November, MCD announced a new growth strategy, Accelerating the Arches. For the strategy, the company is focused on updating its r actions and behaviors and growth pillars by leveraging its  competitive advantage. It is formulated to  help MCD increase its market reach and customer base further.

Against an uncertain backdrop in franchisee and restaurant operations, MCD delivered its strongest quarter of the year, reporting  nearly 99% of fourth quarter 2019 global comparable sales. MCD reported revenues of $5.31 billion in the fourth quarter ended December 31, 2020. Its global comparable sales improved sequentially, reflecting positive comparable sales in the U.S. of 5.5%. It reported a net income of $1.38 billion, yielding an EPS of $1.84.

Analysts expect MCD’s EPS to rise 21.8% year-over-year to $1.79 in the current quarter ending March 31, 2021. A consensus revenue estimate of $5.02 billion for the current quarter represents  a 6.4% rise year-over-year. The stock has gained 7% over the past six months.

MCD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. MCD has a Quality Grade of A. In the 48-stock Restaurants Industry, it is ranked #8.

In total, we rate MCD on eight different levels. Beyond what we have stated above, we have also given MCD grades for Growth, Value, Momentum, Stability, and Sentiment. Get all MCD’s ratings here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Yum! Brands, Inc. (YUM)

Based in Kentucky, YUM operates and franchises more than  50,000 quick service restaurants worldwide. It operates in three segments: the KFC Division, the Pizza Hut Division, and the Taco Bell Division. The Company’s family of brands includes a fast-casual restaurant concept, The Habit Burger Grill.

Last month,  KFC  introduced a new, premium chicken sandwich across all 4,000 U.S. KFC restaurants. The new KFC Chicken Sandwich was tested last spring, after which the company nearly doubled its sales expectations. On January 26, Pizza Hut introduced a newly handcrafted unique Detroit-Style pizza nationwide.

Later in January, YUM was named to the 2021 Bloomberg Gender-Equality Index (GEI) based on its  commitment to advancing women’s equality and transparency in gender reporting.

YUM’s revenues have increased 8.1% year-over-year to $1.45 billion in the third quarter ended September 30, 2020. Its core operating profit has increased 3.7% from the year-ago value to $280 million, while its net income rose 11% over the same period to $283 million, yielding an EPS of $0.94, up 13% year-over-year.

Analysts expect YUM’s revenues to rise 1.8% year-over-year to $1.72 billion in the about-to-be-reported quarter ended December 31, 2020. A consensus EPS estimate of $1.01 for the fourth represents  a slight improvement year-over-year. The stock has gained 13.2% over the past six months.

YUM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our rating system. YUM has a grade of A for Quality. It is currently ranked #12 in the same industry.

Click here to see the additional POWR Ratings for YUM (Value, Growth, Momentum, Stability, and Sentiment).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Papa John's International, Inc. (PZZA)

PZZA is a pizza restaurant franchise operating in the following segments - Domestic Company-Owned Restaurants, North America Commissaries, North America Franchising, and International Operations. It operates and franchises pizza delivery and carryout restaurants under its trademark internationally.

PZZA’s revenues have increased 17.1% year-over-year to $472.94 million in the third quarter ended September 30, 2020. Its operating profit has increased 398.3% from its  year-ago value to $24.55 million, while its Non-GAAP EPS has increased substantially from a negative year-ago value to $0.35 over this period.

A consensus EPS estimate of $0.46 for the about-to-be-reported quarter ended December 31, 2020 represents  a 24.3% rise year-over-year. The company has an impressive earnings surprise history also;  it has beaten  the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $465.72 million for the current quarter represents an 11.5% rise from the year-ago value. The stock has gained 7.4% over the past six months.

It is no surprise that PZZA has an overall rating of B which equates to Buy in our POWR Ratings system. PZZA has a grade of B for Quality and Value, and A for Growth. In the same industry, it is ranked #5.

Click here to see the additional POWR Ratings for PZZA (Stability, Momentum, and Sentiment).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Jack in the Box Inc. (JACK)

JACK operates and franchises more than  2,200 Jack in the Box quick-service restaurants. Jack in the Box is a hamburger chain that  offers a selection of meals, including tacos, fries, specialty sandwiches, and ice cream shakes, among other edibles.

JACK’s revenues have increased 15.4% year-over-year to $255.40 million in the fiscal fourth quarter ended September 27, 2020. Its adjusted EBITDA increased 17.2% from the year-ago value to $78.44 million, while its non-GAAP operating EPS improved 69.5% over the same period to $1.61.

Analysts expect JACK’s EPS to rise 124% year-over-year to $1.12 in the current quarter ending March 31, 2021. A consensus revenue estimate of $243.82 million for the current quarter represents  a 12.8% rise year-over-year. The stock has gained 14.4% over the past six months.

JACK is rated B, which equates to Buy in our POWR Ratings system. Jack has a grade of B for Value, Quality and Growth. It is currently ranked #6 in the same industry.

We also have given JACK grades for Stability, Sentiment, and Momentum. Get all of Jack’s ratings here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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MCD shares were unchanged in after-hours trading Wednesday. Year-to-date, MCD has declined -2.74%, versus a 2.13% rise in the benchmark S&P 500 index during the same period.

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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