While labor shortages have plagued the restaurant sector, according to food consultancy Aaron Allen & Associates, up to 82% of restaurant roles could be replaced by robots. With automation, US fast-food companies are slated to save more than $12 billion in yearly pay, which should boost their profit margins. Dining out has become a lifestyle trend that is here to stay.
Moreover, according to Technavio's report, the global fast-casual restaurant market size is estimated to increase at a CAGR of 12.4% until 2026. Furthermore, amid the rising demand for online delivery services, ghost kitchens, also known as cloud/dark kitchens, are gaining traction. According to Euromonitor, the ghost kitchen business will be worth $1 trillion by 2030.
Therefore, we think fundamentally sound restaurant stocks Starbucks Corporation (SBUX) and Dine Brands Global, Inc. (DIN) could be ideal additions to your watchlist this week.
Starbucks Corporation (SBUX)
SBUX and its subsidiaries, operate as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America; International; and Channel Development.
On January 17, 2023, SBUX and DoorDash, Inc. (DASH) announced the expansion of their partnership with the debut of a new delivery service in Northern California, Texas, Georgia, Florida, and other chosen cities. This alliance is expected to be beneficial for both companies.
SBUX's trailing-12-month ROTA of 11.73% is 158.3% higher than the 4.54% industry average. Its trailing-12-month EBIT margin of 13.78% is 73.2% higher than the 7.96% industry average.
SBUX has paid dividends for 12 consecutive years. Over the past three years, SBUX's dividend payouts have grown at 10.3% CAGR. While SBUX's four-year average dividend yield is 1.88%, its current dividend translates to a 1.99% yield.
SBUX's total net revenue increased 3.3% year-over-year to $8.41 billion for the fourth quarter that ended October 2, 2022. Its company-operated stores' revenues grew marginally year-over-year to $6.90 billion, while its licensed stores' revenues came in at $998.40 million, up 25.7% year-over-year.
Street expects SBUX's revenue to increase 11.6% year-over-year to $35.98 billion in 2023. Its EPS is expected to increase 16.2% year-over-year to $3.44 in 2023. Over the past six months, the stock has gained 27.6% to close the last trading session at $106.64.
SBUX's Strong fundamentals are reflected in its POWR Ratings. The stock's overall B rating is a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SBUX has an A grade for Sentiment and a B grade for Quality. Within the B-rated Restaurants industry, it is ranked #18 of 46 stocks. Beyond what is stated above, we've also rated SBUX for Value, Momentum, Growth, and Stability. Get all the SBUX ratings here.
Dine Brands Global, Inc. (DIN)
DIN owns, franchises, operates, and rents out full-service restaurants globally. It operates through five segments, Applebee's Franchise Operations; International House of Pancakes (IHOP) Franchise Operations; Rental Operations; Financing Operations; and Company-Operated Restaurant Operations.
On December 5, 2022, IHOP®, a division of DIN, and General Mills, Inc. (GIS) collaborated to release the unique, limited-edition IHOP Mini Pancake Cereal. This collaboration with the breakfast pioneer should benefit IHOP.
On the same day, DIN agreed to buy Fuzzy's Taco Shop® from Experiential Brands LLC, a wholly-owned subsidiary of NRD Holding Company, for $80 million in cash. The business will have access to Fuzzy's committed audience, distinctive branding and should witness significant growth as it brings Fuzzy's 138 locations across 18 states into the DIN family.
DIN's trailing-12-month gross profit margin of 40.60% is 14.1% higher than the 35.58% industry average. Its trailing-12-month EBIT margin of 20.73% is 160.5% higher than the 7.96% industry average.
DIN's four-year average dividend yield is 2.44%, and its current dividend translates to a 2.71% yield.
DIN's total revenue increased 2% year-over-year to $233.22 million for the third quarter that ended September 30, 2022. Its total franchise revenue came in at $164.91 million, up 2.3% year-over-year. Its restaurant sales grew 8.4% from the year-ago value to $38.25 million.
DIN's EPS is expected to increase 15% year-over-year to $7.04 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past three months, the stock has gained 12.9% to close the last trading session at $75.14.
DIN's overall B rating equates to a Buy in our POWR Ratings system. It has a B for Value and Quality. The stock is ranked #12 in the same industry. We've also rated DIN for Momentum, Stability, Sentiment, and Growth. Get all DIN ratings here.
SBUX shares were trading at $106.37 per share on Wednesday afternoon, down $0.27 (-0.25%). Year-to-date, SBUX has gained 7.23%, versus a 4.22% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
2 Restaurant Stocks to Add to Your Watchlist This Week StockNews.com
