Portfolio Staples: 3 Buy-Rated Food and Restaurant Stocks

NEW YORK (TheStreet) -- ConAgra Foods (CAG)

ConAgra Foods, North America's largest packaged food companies, is trading 0.10% higher to $30.40, as of 3:25 p.m. ET, following its board of directors approving a 25-cent dividend payment to be paid to stockholders on December 3.

TheStreet Ratings team rates ConAgra Foods as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate ConAgra Foods (CAG) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 4.1%. Since the same quarter one year prior, revenues rose by 27.2%. This growth in revenue does not appear to have trickled down to the company's bottom line.
  • ConAgra Foods' earnings per share declined by 45.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ConAgra Foods increased its bottom line by earning $1.86 a share vs. $1.11 in the prior year. This year, the market expects earnings of $2.33 a share.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The gross profit margin for ConAgra Foods is rather low; currently it is at 23.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 3.43% trails that of the industry average.


The Cheesecake Factory  (CAKE)

Despite an overall decline in the family-dining sector, The Cheesecake Factory continues see revenue growth on a quarter-to-quarter basis. In the second quarter ended July 2, the company reported a 3.4% increase in revenue to $470.1 million compared to the same period a year earlier.

The Cheesecake Factory shares are 1.2% lower to $43.08, as of 3:25 p.m. ET. Overall, shares are lagging the S&P 500 which is down 0.71%.

TheStreet Ratings team rates The Cheesecake Factory as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate The Cheesecake Factory (CAKE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Even though revenue increased by 3.4% over the year-earlier period, the company underperformed as compared with the industry average of 4.6%. Yet this growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Net operating cash flow has increased 32.3% to $43.5 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 7.1%.
  • The Cheesecake Factory reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, The Cheesecake Factory increased its bottom line by earning $1.78 a share vs. earnings of $1.66 a share in 2011. This year, the market expects an improvement in earnings of $2.12 a share.
  • CAKE's debt-to-equity ratio is very low at 0.09 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.78 is somewhat weak and could be cause for future problems.


Brinker International (EAT)

Brinker International, the company behind fast-casual chains Chili's Grill & Bar and Maggiano's Little Italy, is trading 0.63% lower to $39.40, as of 3:25 p.m. ET. Brinker shares have gained 30% this year.

Brinker International's first quarter ended on September 25. It will report earnings on October 23.

TheStreet Ratings team rates Brinker International as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate Brinker International (EAT) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, notable return on equity and growth in earnings per share. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 0.1%.
  • The company's current return on equity greatly increased when compared to the same quarter last year. This is a signal of significant strength within the corporation. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, Brinker International's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Brinker International's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Brinker International increased its bottom line by earning $2.21 a share vs. $1.89 a share in the prior year. This year, the market expects earnigns of $2.75 a share.
  • The gross profit margin for Brinker International is rather low; currently at 20.45%, despite rising from the same period last year. Net profit margin of 6.35% trails the industry average.

--Written by Keris Alison Lahiff.

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