If you're hungry for stocks, here are three tasty restaurant picks.
Domino's Pizza, Inc.
This whiz at online pizza ordering and delivery is in the top three of pizza companies. It's no wonder that its stock has risen from $8.38 on January 1, 2001, to the Wednesday, Aug. 1, close of $270.34. BTIG analyst Peter Saleh gave the company a price target of $310. The mean price target, of 14 analysts on FactSet, is $292.21, with the highest, $336, coming from Alton Stump at Longbow Research.
"We continue to believe that Domino's (DPZ) - Get Report market share gains are partly a function of its consistent value positioning against a fragmented pizza category," wrote Saleh in a recent note. He added that its $5.99 Mix and Match menu, now nine years old, allows the pizza chain to underprice independent chains and larger retailer and national chains and noted that troubles with rival Papa John's International Inc. (PZZA) - Get Report have helped drive business to Domino's. Finally, he wrote: "We expect Domino's continuous technology innovation and more recent carryout focus to continue the pace of sales gains in coming years."
After the release of second-quarter 2018 results in late July, Wells Fargo's Jon Tower wrote that "nothing with second-quarter 2018 results appears to have altered DPZ's long-term story (i.e., compounding cash flows predicated on asset-light, global system-wide sales growth), and we would expect investors with a longer-term horizon to use today's weakness to add to positions in the stock."
Watch what Domino's Chief Financial Officer just told TheStreet.
Restaurant Brands International Inc.
The owner of Burger King, Tim Hortons and Popeyes Louisiana Kitchen has doubled its share price in three years to close at $63.91 on Wednesday. Yet the company is poised for another big price uptick, judging from the consensus of 13 analysts on FactSet, whose average target is $90.31.
"We view Restaurant Brands (QSR) - Get Report as the most compelling stock idea in the U.S. restaurant sector," wrote RBC Capital Markets analyst David Palmer, who recently gave the stock an outperform and a price target of $72. "We anticipate the current free cash flow multiple to expand (20x FCF; 5.1% FCF yield) toward peer levels as Tim Hortons sales trends improve later in the year. Until then, the stock should be supported by a 3% dividend yield, double-digit earnings per share growth and 6% plus long-term revenue growth."
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In a note on Wednesday, Aug. 1, following earnings, Morgan Stanley's John Glass wrote: "Generally an in-line quarter, but one that likely won't catalyze the stock, as much of the work to rekindle comp growth at Tim's is still on the come. But as long as that story remains intact, we think investors will stay engaged."
For the quarter, comps at Tim's were flat, although they were up at both Burger King and Popeyes.
The burger chain, known for its square burgers and Frosty frozen custard, was in the news lately, when Papa John's founder John Schnatter reportedly met with its executives about a merger. Those talks fell apart in a New York minute.
Just as well, Wells Fargo's Glass noted, because Wendy's "may not want to take on the reputational risk associated with a potential merger."
Shares have more than tripled in five years. The stock closed at $16.69 on Wednesday. The consensus target price of 15 analysts on FactSet is $19.18. However, SunTrust Robinson Humphrey "still sees a meaningful upside" and gave it a price target of $21, according to analyst Jake Bartlett.
Glass added: "Wendy's (WEN) - Get Report relatively new management team has had success focusing on sales growth and creating a leaner, more cash-generative and higher returning model. With most of the cost-cutting in the rear view, we still believe Wendy's has ample opportunity ahead to drive top-line growth through remodeling of the store base, domestic and international unit growth, average unit volume expansion (core day-part growth and the potential for expansion into new day parts), technology initiatives (kiosks, mobile ordering) and delivery (to name a handful)."
Wendy's CEO told TheStreet he is making a big push with digital ordering.