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Our topic today is the best restaurant stocks to buy in July. After two full years when Covid-19 dominated the global headlines, most people are back to their pre-pandemic routines. This recovery is most apparent with restaurants quickly returning to their glory days.
Yelp’s recently released State of the Restaurant Industry Report highlights that “on-premises dining began to rebound, while takeout remained robust.” Still, many challenges remain. The report also mentions that “from shifts in operating models, to worker shortages and supply chain issues, the industry has faced challenging business conditions on its road to recovery”.
According to the National Restaurant Association (NRA), in May, restaurants and bars generated revenues of $85 billion on a seasonally adjusted basis. This amount represented the fourth consecutive monthly increase in total consumer spending at restaurants and bars.
It was also up 23.6% year-over-year (YOY) for the first five months of 2022. In the wake of this recovery, restaurant stocks are making an impressive comeback, showing significant resilience despite broad-based price increases.
With that information, here are seven restaurant stocks to buy in Q3 for lucrative returns through the rest of the year.
|CMG||Chipotle Mexican Grill||$1,373.74|
|QSR||Restaurant Brands International||$53.6|
Arcos Dorados (ARCO)
52-week range: $4.33 – $8.44
Arcos Dorados (NYSE:ARCO), based in Montevideo, Uruguay, is the largest McDonald’s franchisee worldwide. The company has the exclusive right to own, use, and grant McDonald’s franchises in Latin America and the Caribbean.
The McDonald’s franchisee released Q1 results on May 18. Revenue increased 42% YOY to $790.7 million. Net income came in at 12 cents per share, compared to a net loss of 14 cents per share in the prior-year period. Cash and equivalents ended the period at $280 million.
Arcos Dorados has returned to profitability thanks to its “Three-D” business strategy, which stands for digital sales, delivery, and drive-thru. Its partnership with Bringg, a leading delivery orchestration platform, has helped Arcos Dorados optimize its delivery operations and minimize delivery times. The streamlined digital sales experience accounted for 40% of Q1 revenue.
ARCO stock has returned almost 15% year-to-date (YTD). It currently supports a 1.8% dividend yield. Shares are trading at 16.4 times forward earnings and 0.5 times sales. Meanwhile, the 12-month median price forecast stands at $9.5.
Chipotle Mexican Grill (CMG)
Source: Northfoto / Shutterstock.com
52-week range: $1,196.28 – $1,958.55
The popular Tex-Mex chain chain issued Q1 results on April 26. Revenue soared 16% YOY to $2 billion. Adjusted diluted earnings per share (EPS) came in at $5.70, representing a 6.3% increase from $5.36 in the prior-year period. Cash and equivalents ended the quarter at $646.7 million.
Total revenue growth was driven by a 9% increase in comparable restaurant sales and new restaurant openings. While digital sales represented 42% of total food and beverage revenue, in-restaurant sales increased by a substantial 33%.
The chain has added 51 restaurants to its portfolio and plans to add up to 250 for the year. Management projects same-store sales in the second quarter to grow by 10% to 12%.
So far in 2022, CMG stock has fallen more than 21%. Shares are trading at 40 times forward earnings and 4.7 times trailing sales. Wall Street’s 12-month median price forecast is at $1755.
Domino’s Pizza (DPZ)
Source: Ken Wolter / Shutterstock.com
52-week range: $321.15 – $567.57
Domino’s Pizza (NYSE:DPZ) is the largest pizza company in the world, operating in more than 90 international markets with over 18,300 stores. Most of Domino’s restaurants are franchised, and it collects a percentage of sales revenue from these locations.
The pizza giant announced Q1 results on April 28. Global retail sales grew 3% YOY to $1.01 billion. However, adjusted EPS declined 16.7% YOY to $2.50, down from $3 in the prior-year quarter. Cash and equivalents ended the period at $165 million.
Domino’s grew its global store base by 213 new locations in the first quarter. However, same-store sales in the U.S. declined 3.6% due to staffing shortages and rising inflation. Furthermore, rising inflation also resulted in the decline of the operating profit margin, which dropped to 16.3% of sales, down from 19% a year ago.
DPZ stock has lost 28% YTD. It currently generates a 1.07% dividend yield. Shares are changing hands at 20.8 times forward earnings and 3.4 times sales. Analysts’ 12-month median price forecast stands at $410.
Dutch Bros (BROS)
Source: Alexander Oganezov / Shutterstock.com
52-week range: $20.05 – $81.40
Dutch Bros (NYSE:BROS) is a relatively new player in the specialty coffee scene, while it went public in September 2021. It offers handcrafted beverages such as cold brews and iced coffees, and currently operates around 600 locations across the U.S.
The coffee chain reported Q1 results on May 11. Revenue grew 54% YOY to $152.2 million. Adjusted net loss stood at $2.5 million, or 2 cents per share, compared to adjusted net income of $12.3 million a year ago. Cash and equivalents ended the period at $26.8 million.
Company-operated shop revenues came in at $130 million, up 67% YOY. Dutch bros added 34 new stores in the first quarter and targets at least 130 new shop openings in 2022.
Management lowered its earnings outlook based on inflation concerns. Yet, it maintained 2022 revenue forecast between $700 million and $715 million.
Since January, BROS stock has lost 32%. Shares are trading at 80.7 times forward earnings and 3.3 times sales. Meanwhile, the 12-month median price forecast stock is at $35.
FAT Brands (FAT)
52-week range: $5.47 – $15.99
FAT Brands (NASDAQ:FAT) is a leading multi-brand restaurant franchising company. Its portfolio of brands includes Fatburger, Round Table Pizza, and Johnny Rockets, among others. The company primarily focuses on casual dining, fast-casual, and quick-service dining concepts.
Management issued Q1 metrics on May 5. Revenue skyrocketed to $97.4 million compared to $6.6 million in the prior-year period. Adjusted net loss came in at $1.13 per diluted share, compared to 17 cents loss per diluted share a year ago.
System-wide, same-store sales grew 16.8% YOY in the first quarter. Top line growth reflected revenue from the acquisitions of Global Franchise Group, Twin Peaks, Fazoli’s, and Native Grill & Wings during the second half of 2021. Furthermore, the chain is acquiring Nestlé Toll House Café by Chip from Crest Foods and rebrand the stores to Great American Cookies.
FAT stock has fallen 27% YTD. However, it currently generates a lucrative 7% dividend yield. Shares are trading at a cheap 0.5 times sales. Finally, the 12-month median price forecast stands at $25.
Source: Nixx Photography / Shutterstock.com
52-week range: $217.68 – $271.15
Mcdonald’s (NYSE:MCD) is the largest fast-food chain in the world, with more than 40,000 mostly franchised stores. It continues transforming the fast-food industry, growing its global footprint via partnerships with independent restaurant franchisees.
The fast-food giant issued Q1 2022 results in late April. Revenue came in at $5.67 billion, representing an 11% YOY growth. Adjusted earnings of $2.28 per share increased 19% YOY. Cash and equivalents ended the quarter at $2.3 billion.
Global comparable sales jumped 12% in the first quarter. Strong double-digit growth in international markets helped lift a modest 3.5% increase in U.S. sales.
The fast-food chain boasts significant pricing power and averaged 8% price hikes for the quarter. As a result, it was able to offset cost inflation. Meanwhile, management has been pushing aggressively into digital sales and home-delivery niches.
MCD stock has declined 8% YTD. It generates a 2.2% dividend yield at current prices. Shares are trading at 24.3 times trailing earnings and 7.6 times trailing sales. Lastly, the 12-month median price forecast is at $280.
Restaurant Brands International (QSR)
Source: Tony Prato / Shutterstock.com
52-week range: $46.68 – $68.53
Restaurant Brands International (NYSE:QSR) is one of the largest fast-food restaurant companies worldwide. Its portfolio of brands includes Burger King, Popeyes, and Tim Horton. Management operates a network of more than 29,000 restaurants globally.
The quick service restaurant company announced Q1 results on May 3. Revenue grew 15% YOY to $1.45 billion. Adjusted net income came in at 64 cents per diluted share, up from 55 cents a year ago. Cash and equivalents ended the period at $895 million.
First quarter system-wide sales grew 14% YOY, up by almost $1 billion. Global comparable sales growth of 8% was primarily driven by more than 10% at Tim Hortons Canada and 20% at Burger King International.
QSR stock has dropped more than 11.6% YTD, yet it currently generates a robust 4.1% dividend yield. Shares are trading at 13.5 times forward earnings and 4.07 times sales. Meanwhile, the 12-month median price forecast stands at $61.
On the date of publication, Tezcan Gecgil,Ph.D., did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.