Although profits suffered throughout the pandemic, the aftermath of this global event has significantly transformed the restaurant industry, leading to profound changes in its structure and dynamics. The pent-up dining demand and the emergence of new trends and innovative strategies that cater to the continuously evolving customer preferences present exciting opportunities within this industry.
Given the promising backdrop, it could be an opportune time to scoop up the shares of three well-known quality restaurant companies Starbucks Corporation (SBUX), Domino's Pizza Group plc (DPUKY), and Rave Restaurant Group, Inc. (RAVE).
According to a report by the National Restaurant Association, despite macroeconomic headwinds this year, the steadfast yearning of consumers for the restaurant experience remains robust, playing a crucial part in driving the restaurant industry's resurgence. A substantial 84% of consumers express a preference for dining out with friends and family over the prospect of cooking and cleanup, considering it a superior use of their leisure time.
Moreover, In the post-pandemic era, the restaurant sector has experienced a significant upswing in the need for online food delivery solutions. To address this escalating demand, eateries have embraced diverse tactics, one of which involves the establishment of online food delivery applications.
Given the booming demand, the online food delivery market is anticipated to attain a revenue milestone of $1 trillion by 2023 and is estimated to hit a market volume of $2 trillion by the year 2027, exhibiting an impressive CAGR of 12.8% during the forecasted period from 2023 to 2027.
Changing customer preferences are also significantly impacting the restaurant industry. For example, according to a report by Barclays, diners are increasingly spending more money at visually appealing restaurants, a trend driven by the desire to share picturesque experiences on social media platforms.
Furthermore, due to growing fast food consumption and rising disposable incomes, the global food service market is projected to grow from $2.65 trillion in 2023 to $5.42 trillion by 2030, expanding at a CAGR of 10.8% during the forecast period.
Keeping all these factors in mind, let us take a look at the fundamentals of the featured restaurant stocks in detail:
Starbucks Corporation (SBUX)
SBUX, a global icon in the realm of coffee culture, operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America; International; and Channel Development.
On June 21, SBUX declared a quarterly dividend of $0.53 per share of outstanding common stock, payable to its shareholders on August 25. The company’s annual dividend of $2.12 translates to a yield of 2.08% at the current price level, while its four-year average dividend yield is 1.91%.
Its dividend payouts have grown at CAGRs of 9.4% and 12.6% over the past three and five years, respectively. Also, it has a record of 12 years of consecutive dividend growth.
SBUX’s trailing-12-month EBITDA margin of 18.58% is 73.1% higher than the 10.73% industry average. Its trailing-12-month net income margin of 10.80% is 157.8% higher than the industry average of 4.19%. In addition, the stock’s trailing-12-month levered FCF margin of 7.78% is 71% higher than the industry average of 4.55%.
SBUX’s total net revenues for the third quarter (ended July 2, 2023) increased 12.5% year-over-year to $9.17 billion, while its operating income rose 22.3% from the year-ago value to $1.58 billion.
The company’s attributable net earnings and EPS amounted to $1.14 billion and $0.99, up 25.1% and 25.3% from the prior-year quarter, respectively. Also, during the same period, its cash and cash equivalents came in at $3.36 billion, increasing 19.1% versus $2.82 billion as of October 2, 2022.
Street expects SBUX’s revenue and EPS for the fourth quarter (ending September 2023) to increase 10.3% and 19.9% year-over-year to $9.28 billion and $0.97, respectively. Moreover, the company has an impressive earnings surprise history, surpassing the EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 18.7% to close the last trading session at $100.70.
SBUX’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum, Stability, and Quality. In the 44-stock B-rated Restaurants industry, it is ranked #10. Click here to see SBUX’s ratings for Growth, Value, and Sentiment.
Domino's Pizza Group plc (DPUKY)
Based in Milton Keynes, the United Kingdom, DPUKY operates and franchises Domino's Pizza stores. It operates stores in the United Kingdom and the Republic of Ireland, as well as leases its stores.
On August 1, DPUKY declared an interim dividend of 3.30p per share, payable to its shareholders on September 20, 2023. The company’s annual dividend of $0.17 translates to a yield of 1.62% at the current price level, while its four-year average dividend yield is 2.89%.
The stock’s trailing-12-month EBITDA margin of 17.97% is 67.5% higher than the 10.73% industry average. Its trailing-12-month net income margin of 18.28% is 337% higher than the industry average of 4.18%. Also, DPUKY’s trailing-12-month ROTA of 25.03% is 586.5% higher than the industry average of 3.65%.
In the six-month period that ended June 25, 2023, DPUKY’s total revenue increased 19.6% year-over-year to £332.90 million ($365.06 million), while its gross profit grew 20.9% from the year-ago value to £153.20 million ($168 million).
The company’s profit for the period and EPS rose 90.5% and 102.1% year-over-year to £80.20 ($87.95 million) and 19.20p, respectively. In addition, its comprehensive income for the period improved by 82% from the year-ago value to £77 million ($84.43 million).
The consensus revenue estimate of $805.71 million and $853.79 million for the fiscal years ending December 2023 and 2024 reflects increases of 12.6% and 5.9% year-over-year, respectively.
The stock has gained 83% over the past nine months to close the last trading session at $10.34
DPUKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Stability and a B for Momentum and Quality. Within the same B-rated industry, it is ranked #2. Click here to see the other ratings of DPUKY for Growth, Value, and Sentiment.
Rave Restaurant Group, Inc. (RAVE)
RAVE operates and franchises pizza buffet, delivery/carry-out, and express restaurants under the Pizza Inn trademark in the United States and internationally. It operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.
On June 27, RAVE’s franchise Pizza Inn, in collaboration with Principal Master Licensee and Development Partner Ginny Singh, inaugurated the first New Zealand Pizza Inn. This marks the brand's entrance into the New Zealand market, with plans to open 10 Pizza Inn restaurants in Auckland over three years. This expansion strategy is focused on key areas, including Manukau, Henderson, and Albany.
The introduction of Pizza Inn to New Zealand underscores the brand's firm commitment to expanding its global presence. Through a strategic franchise agreement encompassing ten locations, Pizza Inn is demonstrating its unwavering dedication to growth on an international scale.
RAVE’s trailing-12-month EBITDA margin of 16.80% is 56.6% higher than the 10.73% industry average. The stock’s trailing-12-month levered FCF margin of 11.85% is 160.5% higher than the 4.55% industry average. Furthermore, its trailing-12-month net margin of 66.57% is significantly higher than the industry average of 4.19%.
For the fiscal third quarter, which ended on March 26, 2023, RAVE’s revenues increased 13.4% year-over-year to $2.97 million, while Its cash inflow from operating activities rose 134.9% from the year-ago value to $1.23 million.
During the same period, the company’s net income amounted to $323 thousand and $0.02 per share, respectively. In addition, RAVE’s total liabilities came in at $3.82 million, compared to $5.10 million as of June 26, 2022.
Moreover, the company’s EPS is projected to improve by 10% per annum over the next five years. RAVE’s shares gained 68.9% over the past nine months and 62.9% over the past year to close the last trading session at $2.28.
It’s no surprise that RAVE has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Quality and B for Value and Sentiment. Out of 46 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have RAVE’s ratings for Growth, Momentum, and Stability. Get all RAVE ratings here.
What To Do Next?
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SBUX shares were trading at $100.30 per share on Wednesday afternoon, down $0.40 (-0.40%). Year-to-date, SBUX has gained 2.12%, versus a 17.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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