12 Restaurant Stocks at 52-Week Highs

(Restaurant stocks at 52-week highs report updated with commentary on McDonald's.)

NEW YORK ( TheStreet) -- A dozen stocks in the restaurant sector tapped fresh 52-week highs Tuesday morning.

Shares of Starbucks ( SBUX), McDonald's ( MCD) and Brinker International ( EAT) all hit fresh annual heights during the day's fairly bullish trading session.

The PowerShares Dynamic Leisure and Entertainment Portfolio ( PEJ) and PowerShares Dynamic Consumer Discretionary Sector Portfolio ( PEZ), exchange-traded funds that track stocks in the restaurant sector, each bid 0.4% higher Tuesday afternoon.

>> 10 Restaurant Stock Winners of 2010

Here then is a look at the group of restaurant sector players soaring to record annual heights, with a little background on what's driving the stock.

Starbucks

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Starbucks ( SBUX)

52-Week High Reached Tuesday: $33.09

Starbucks is in the middle of a developing dispute with Kraft Foods ( KFT) surrounding Starbucks' termination of the pair's 12-year distribution agreement.

Kraft said Monday it is seeking a preliminary injunction against Starbucks for breaking the agreement .

Kraft said "Starbucks is attempting to unilaterally end the strategic partnership that provides Kraft with the exclusive rights for the sales, marketing and distribution of Starbucks roast and ground coffee in grocery and other retail outlets." In seeking an injunction, Kraft wants Starbucks to stop moving ahead with business operations as if the agreement had already been terminated. Kraft argued "the contract is still in force."

In response to Kraft's statement, Starbucks said Monday it "believes that it's unfortunate that Kraft has chosen to attempt this delaying tactic through seeking preliminary injunction, a course that will ultimately prove harmful to customers. Starbucks has repeatedly said that we have terminated our agreement with Kraft and we continue to look forward to assuming full responsibility for the sales and distribution of our packaged coffee products as of March 1, 2011."

>> Peet's Could Benefit from Starbucks-Kraft Split

McDonald's

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McDonald's ( MCD)

52-Week High Reached Tuesday: $80.94

McDonald's shares not only reached a fresh 52-week high Tuesday but pushed up to a new record high as investors anticipate a strong report on November sales.

>> McDonald's Reaches All-Time High

McDonald's is due to report its November monthly sales figures on Wednesday. Analysts' consensus is for the Golden Arches to report global comparable same-store sales growth -- or sales at stores open at least one year, a closely watched metric in the restaurant industry -- of 5.6%. The consensus for U.S. comps growth at McDonald's in November is 5.1%.

Deutsche Bank analyst Jason West expects McDonald's to report global comps growth of 5.3% and U.S. comps growth of 5% for November, compared with a 0.6% decline in the year-earlier month.

"According to our model, this will be MCD's easiest compare since April '03," he noted.

"We look for U.S. momentum to continue in November as comparisons ease slightly vs. October and helped by national McRib limited-time offering and softening competitive environment," he noted.

In Europe, West expected McDonald's to report 3.5% comps growth for November, below the consensus for same-store sales growth of 4.9%. In Asia/Pacific, Middle East and Africa he expects to see growth of 6%.

In October, McDonald's grew global comps by 6.5% . By region, October comps grew 5.6% in the U.S., 5.8% in Europe and 5.3% in Asia/Pacific, Middle East and Africa.

Brinker International

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Brinker International ( EAT)

52-Week High Reached Tuesday: $22.56

Bar-and-grill restaurant chains like Brinker International's Chili's have generally poor fundamentals coming out of the recent recession relative to other restaurants in the casual dining space, said Stifel Nicolaus analyst Steve West.

While the segment is doing poorly, stocks were so depressed at the start of 2010 that significant share price percentage gains in the year were, in large part, a simple bounce off serious lows, West said.

The group focused heavily on "extreme discounting" in 2010 as a means of luring customers in the door. Brinker's revenue fell 6% in the recent quarter , in part because of heavy promotions. Another drawback to the strategy is the training of its customer base to only buy when heavy promotions are offered. (Think DineEquity's ( DIN) Applebee's big promotion of two entrees plus an appetizer for $20. Chili's offered the same thing. With such similar menus among the pair, customers' opt to go where the discounts are steeper.)

That means customers will either wait to dine at Chili's until there is a discount, or save up their money and trade up to chains like Cheesecake Factory ( CAKE), West said.

Darden

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Darden ( DRI)

52-Week High Reached Tuesday: $50.83

Darden enjoyed solid share price percentage gains in 2010 , in part because it falls under West's umbrella category of "upper-mid-scale-casual" restaurants, a segment of the industry that focused more on customer service -- rather than deep discounting -- to get penny-pinched customers in the door this year.

That focus means Darden, along with industry peers like Texas Roadhouse ( TXRH) and Cracker Barrel Old Country Stores ( CBRL), is well-positioned coming out of the Recession, West said.

The operator of Capital Grille restaurant brands, among others, announced in October that it inked a franchise deal with Kuwait Food Company Americana to set up international chain restaurants of its Red Lobster, Olive Garden and Long Horn Steak House brands in the Gulf Cooperation Council, Egypt, Jordan and Lebanon.

In September, Darden reaffirmed its fiscal 2011 guidance, saying it expects earnings per share to grow 14% to 17% year-over-year, or between $3.26 and $3.35 per share. Full-year revenue is expected to grow in a range between 5.5% and 6.5%, to a range between $7.5 billion and $7.57 billion.

Cheesecake Factory

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Cheesecake Factory ( CAKE)

52-Week High Reached Tuesday: $34

Cheesecake's latest earnings report on Oct. 21 was better than expected as management cited "increasing momentum." Cheesecake also raised full-year guidance, driving the shares higher by 15%.

Cheesecake grew revenue by 3.4% in the first nine months of 2010 . Fourth-quarter sales are expected to grow 4.3% year-over-year.

Like other mid-level restaurant concepts, Cheesecake caters to a broader base of consumers, and focuses on customer service, helping to drive its healthy results in 2010.

The restaurant chain beat expectations for the recent quarter, primarily driven by comps growth of 2.8%. Earnings increased 35% to $22 million, or 37 cents per share. Revenue grew 4.4% to $418.4 million.

Texas Roadhouse

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Texas Roadhouse ( TXRH)

52-Week High Reached Tuesday: $18.27

A competitor of Cheesecake Factory in the casual dining space, Texas Roadhouse posted an 8% jump in revenue in the recent quarter to $245.6 million.

Net income jumped 30% to just under $14 million, or 19 cents per share.

Comps grew 4.3% at company-operated restaurants and 4.4% at franchised locations.

Texas Roadhouse also said comps in the first four weeks of the current quarter grew 3.5% year-over-year. It forecast 2010 diluted earnings per share growth to be around 20% higher than in 2009, at the high-end of its previously announced outlook for growth in the 16% to 20% range.

The revised estimate was based on guidance for comps growth of 2% and 14 new restaurant openings in the year.

Ruby Tuesday

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Ruby Tuesday ( RT)

52-Week High Reached Tuesday: $14

Like DineEquity's Applebee's and Brinker's Chili's, bar-and-grill chain Ruby Tuesday suffers from generally poor fundamentals coming out of the recent recession relative to other restaurants in the casual dining space.

While the segment is doing poorly, stocks were so depressed at the start of 2010 that significant share price percentage gains in the year were, in large part, a simple bounce off serious lows, West said.

West did credit Ruby Tuesday's management with setting low enough expectations that investors didn't expect much. That way when it did beat profit expectations the stock popped.

Like others in the bar-and-grill segment, Ruby Tuesday focused heavily on "extreme discounting" in 2010 as a means of luring customers in the door. That worked well enough -- revenue in its recent fiscal quarter edged slightly higher and comps grew 1.2% -- but the drawback to that strategy is the training of its customer base to only buy when heavy promotions are offered.

That means customers will either wait to dine at Ruby Tuesday until there is a discount, or save up their money and trade up to chains like Cheesecake Factory, West said.

P. F. Chang's China Bistro

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P. F. Chang's China Bistro ( PFCB)

52-Week High Reached Tuesday: $53.38

As a moderately priced restaurant chain, P.F. Chang's competitors include Cheesecake Factory and Texas Roadhouse.

Sterne Agee managing director Lynne Collier recently told TheStreet that she expects P.F. Chang's and other casual dining chains with a bulk of their stores inside or near shopping malls to do well this holiday shopping season because "restaurant dining is not as much contingent on how much customers buy but whether or not they're out."

>> Black Friday: Restaurants Piggyback Retailers

Other names in the sector like California Pizza Kitchen ( CPKI) and Cheesecake Factory are likely enjoying a similar boost this December. As a result, Collier believes they are more likely to get the Black Friday bump as the discount hunting for holiday gifts gets underway.

Restaurant gift card sales will pad the group's sales even further. Americans are expected to spend an average of $145.61 on gift cards this holiday season, according to the National Retail Federation. Just over 33% of shoppers surveyed by the trade group said they will give their friends and family members gift cards to restaurants.

That could amount to $8.28 billion of expected gift card sales this holiday season. " Retailers' discounting on Black Friday should help the restaurant group," she added. "You will have more consumers out and about ... and many people out and about shopping is a good thing for the restaurant group."

Panera Bread

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Panera Bread ( PNRA)

52-Week High Reached Tuesday: $106.87

Panera Bread, along with Cheesecake Factory and Chipotle Mexican Grill ( CMG), was a mid-scale restaurant concept that fared best this year, in part because of its focus on customer service, and also thanks to the return of affluent consumerism as Americans' confidence improved in 2010.

Panera grew revenue by 13% in the first three quarters of the calendar year. Fourth quarter sales are expected to show another 13.7% increase.

Recently, Panera posted third-quarter earnings in line with expectations , but top-line sales of $372 million came in just shy of analysts' consensus call. Quarterly profits jumped 21.1% year-over-year.

Still, the sandwich-and-salad purveyor was optimistic. Panera raised its earnings guidance for the current quarter, saying it now expects to earn between $1.15 and $1.17 per share in the fourth quarter. That's as much as a nickel past Wall Street's expectations for fourth-quarter earnings of $1.13 per share.

"We're coming right through this recession as strong as ever," Executive Chairman Ronald M. Shaich told TheStreet.

Panera reported that system-wide comps grew 6.9% in the recent quarter, including a 5.5% increase at company-owned stores and a 7.9% increase at franchise-operated locations.

BJ's Restaurants

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BJ's Restaurants ( BJRI)

52-Week High Reached Tuesday: $39.05

Casual dining chain BJ's said last month its third-quarter profits surged more than 70% and revenue jumped 24%, as comps increased 6.7%.

Analysts from Oppenheimer recently downgraded the restaurateur's shares to perform, from outperform, maintaining a $30 price target. Also in late October, RBC Capital reiterated a sector perform rating on BJ's stock, raising its price target by $1 to $29.

Sterne Agee's Collier reiterated a buy rating on the bar-and-grill chain, citing the company's "impressive" quarterly results. She raised her earnings expectations for 2010 and 2011, and upped her price target on the stock to $33.

She told TheStreet she likes BJ's because it boasts unit level returns in excess of 30%, better than the industry average. She said its comps have outpaced sector peers for years, a trend she expects to carry on into 2011 -- all despite the fact that a bulk of its stores are in California, a market hit particularly hard by unemployment. "Very impressive," she said.

Like Cheesecake and Texas Roadhouse, BJ's has done very well in the upper-mid-scale-casual segment, West added, again because of its continued focus on customer service.

DineEquity

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DineEquity ( DIN)

52-Week High Reached Tuesday: $57.80

On Monday, the operator of Applebee's and IHOP restaurants announced the sale of 30 company-operated Applebee's restaurants in the Washington, D.C. area as part of DineEquity's ongoing strategy to move to a more highly franchised model of operations.

>>DineEquity Gains on Shrinking Applebee's

The Potomac Family Dining Group purchase is expected to close in the first quarter of 2011.

The transaction is expected to result in after-tax proceeds of around $27 million and is expected to reduce sale-lease-back related financing obligations by $20 million.

"We are pleased to announce the sale of 30 additional company-operated Applebee's restaurants as we continue to execute our strategic goal of transitioning Applebee's into a more highly franchised restaurant system over time," said DineEquity CEO Julia A. Stewart.

In the company's recent quarterly financial report DineEquity said it sold 61 company-operated Applebee's restaurants located in Minnesota and parts of Wisconsin. It also said it planned to sell 20 company-operated Applebee's restaurants located in the Roanoke and Lynchburg markets in Virginia -- a deal which should close in the current quarter -- plus another 36 company-operated Applebee's restaurants located in St. Louis, Missouri and parts of Illinois, which should close in the first quarter of next year.

AFC Enterprises

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AFC Enterprises ( AFCE)

52-Week High Reached Tuesday: $14.84

The operator of Popeyes Louisiana Kitchen restaurants rounds out Tuesday's list of restaurant stocks at 52-week highs.

Possibly the best thing AFC has going for it is that it's almost 99% franchised. Second quarter revenue fell 4%; profits grew 6%. Global same-store sales edged up 0.6% with greater strength at its international stores. By comparison, Yum! Brands' ( YUM) KFC, easily Popeyes' biggest competitor, reported an 8% decline in same-store sales last quarter.

Feltl analyst Mark E. Smith said AFC's Popeyes brand is good, relative to its peers, and was surprised by how well it's done. The brand is tired though, he said, the franchisee base seems disgruntled, and there hasn't been much excitement in the bone-in-chicken space outside of wings, especially given recent health food trends and rising commodity prices.

AFC's franchised model does give it the chance to hold on. Plus, as KFC moves ahead with a more aggressive advertising campaign, chicken is on the mind of the consumer and that ad-generated demand could spill over and benefit Popeyes.

Consumers are loyal to the Popeyes brand, the analyst said, and AFC has been touting an independent taste test showing consumers prefer its chicken to that of KFC. But getting new customers to come in, and keep older customers coming back, is proving to be a difficult endeavor.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to http://twitter.com/miriamsmarket.

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