The Finance Professor
How to Invest in Food Stocks: Restaurants
03/07/08 - 05:32 PM EST
It is only fitting that we end our journey along the food investment chain with a discussion of my favorite link, the restaurant sector (see "A Checklist for Profiting from Retail, Restaurant Stocks" and "Three Ways to Score With Retail, Restaurant Stocks"). To get up to speed on the food investment chain, check out "How to Invest in Food Stocks" and "How to Invest in Food Stocks: The 'Middleman' Plays." This series of lessons concludes with a look at some restaurant specifics that investors should be cognizant of before making an investment, by highlighting challenges in the current agricultural and economic environment. The Source Restaurants will prepare fresh meals from a variety of food sources. Some will cook meals from basic products (like meat, chicken and pasta) which they purchase from suppliers and wholesalers. These companies will make everything from hamburger patties to frozen cod filets to those chicken fingers that kids love to eat. Many restaurants will just purchase and serve prepared foods or beverages from those same food wholesalers or beverage bottlers covered in "How to Invest in Food Stocks: The 'Middleman' Plays," or from local establishments, such as bakers and dairies. Several restaurant chains will provide their individual locations with their own prepared products or basic ingredients. As an example, Domino's Pizza DPZ not only owns and franchises their restaurants, but Domino's also distributes the critical cheese and other products to its franchisees. Finally, restaurants will buy paper goods, cups, glasses and restaurant supplies from a variety of vendors. Some of the nation's largest food wholesalers that distribute products to restaurants are:
| Food Wholesalers and Distributors | ||||
| Company | Ticker Symbol | Closing Share Price on 3/4/2008 |
2007 EPS (Earnings Per Share) |
2008 Estimated EPS |
| Dean Foods | DF | 21.43 | 1.20 | 1.27 |
| Tyson Foods | TSN | 14.92 | 0.74 | 0.26 |
| Source: Yahoo! Finance | ||||
that investors and speculators
will engage in, such as beef, pork bellies, soy beans and sugar (to name a few).
Spectrum of Service and Quality
The restaurant sector is divided into three main categories and offers a wide variety of investment opportunities -- from quick service to premium dining.
Quick Service Restaurants (QSRs). Known to many people as "fast food" restaurants, QSRs have the following characteristics:
| Quality Service Restaurants (QSRs) | ||||
| Company | Ticker Symbol | Closing Share Price on 3/4/2008 |
2007 EPS (Earnings Per Share) |
2008 Estimated EPS |
| McDonald's | MCD | 53.63 | 2.89 | 3.18 |
| Burger King | BKC | 26.35 | 1.11 | 1.31 |
| Yum Brands | YUM | 35.02 | 1.68 | 1.86 |
| Wendy's | WEN | 23.91 | 1.20 | 1.32 |
| Domino's Pizza | DPZ | 13.34 | 1.03 | 1.03 |
| Starbucks | SBUX | 17.90 | 0.87 | 0.97 |
| Chipotle Mexican Grill | CMG | 96.52 | 2.13 | 2.67 |
| Panera Bread | PNRA | 36.85 | 1.82 | 2.02 |
| Tim Horton's | THI | 34.67 | 1.34 | 1.65 |
| Source: Yahoo! Finance | ||||
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