6 Restaurants Chains Thriving in This Difficult Landscape

As I opened my laptop this morning to check the market, I couldn’t help but notice the handful of click-bait articles based around restaurant chains.

None of them were positive.

As I scrolled, I saw multiple lists of restaurant chains that may be closing their doors for good.

  • According to a March article from Nation’s Restaurant News, “More than 10% of U.S. restaurants have closed permanently since the coronavirus pandemic began last March.”

That includes the entire Sweet Tomatoes/Souplantation chain and many individual locations of other national chains … not to mention local favorites.

My boyfriend and his son tried to go to one of their favorite pizza spots two weeks ago. They had just been there two weeks before that.

However, this time, the family-owned pizza shop was dark. There was a sign on the door explaining that they decided to close due to a lack of available workers.

It’s not the first sign like that we’ve seen in our area. And I’m pretty sure it won’t be the last. The troubles for the restaurant industry are not over.

  • It seems like every single restaurant in my area — from the local cafes to Taco Bells — is hiring right now.

The local coffee shop has signs asking customers to bring their own cups since they are still having trouble getting supplies. But they are willing to give you a discount and wash it for you before making your drink.

The U.S. restaurant industry is a multibillion-dollar industry. And without COVID-19, we could have likely seen that number cross the trillion-dollar threshold ... so, it’s not a segment of the economy that you just want to write off as a whole.

That’s exactly why I headed over to the Weiss Ratings stock screener to see what restaurants were marked as a “Buy.”

1. Chipotle Mexican Grill (NYSE: CMG) was founded in 1993 and now has nearly 2,900 locations. I will never forget that when I lived up north, my brother required that I place a Chipotle to-go order of his favorite before he would come plow me out of the snow. We had just gotten a Chipotle in our area, and it was pretty clear how you could ensure a favor from the then 17-year-old.

Even back then (10 years ago), you could easily place a to-go order from your phone or computer. This infrastructure is nothing new for Chipotle. And this quick service Mexican restaurant has expanded rapidly since then.

For the third quarter, Chipotle saw total revenue increase 21.9% to $2 billion and comparable restaurant sales increase 15%. Digital sales continued to grow and make up 42.8% of sales.

The company even opened 41 new restaurants including two relocations.

Chipotle is one of those companies that bounces between the “B” and “C” range. It has been in the “Buy” range since July and was upgraded from a “B-” to a “B” just last month.

Shares are up 30% year to date and 107% over the past two years. CMG recently tested its 200-moving average, using it as support, bouncing and presenting a rebound buying opportunity for investors.

2. Domino’s Pizza (MYSE: DPZ) was founded in 1960 and operates around 18,000 stores. This is another company that has had mobile orders way before the pandemic started. Domino’s pizza tracker really set the industry standard for order transparency in 2008. And you can still track your pizza every stage from dough to door.

The company announced its third-quarter earnings back in October. Diluted earnings per share (EPS) saw an increase of 20% compared to the same quarter of 2020. Same-stores sales were up more than 15% over the company’s 2019 pre-pandemic base.

Domino’s has stayed in the “Buy” range since 2014 but was recently downgraded from a “B+” to a “B.” Shares are up 40% year to date and 87% over the past two years. Plus, the company has paid a dividend since 2004.

3. McDonald’s (NYSE: MCD) was founded in 1940 and operates over 39,000 restaurants. The golden arches are an immediately recognizable icon all over the world. For the most recent quarter, the company saw global comparable sales up 12.7% over the previous year and up 10.2% compared to their pre-pandemic levels.

McDonald’s tends to stay in the “Buy” range, but over the course of the pandemic, it fell into the “Hold” range. In May, the company was upgraded from a “C+” to a “B-” and then to a “B” in August.

Shares are up 26% year to date and 40% over the past two years.

Plus, the company has paid a dividend since 1976. In September, the company announced yet another increase to this payment and the intention to resume share repurchases.

4. Yum! Brands (NYSE: YUM) operates restaurants under the KFC, Pizza Hut, Taco Bell and The Habit Burger Grill brands in approximately 150 countries and territories.

The company was just named to the Dow Jones Sustainability Index North America for the fifth year in a row and released a nice infographic to sum up its third quarter results:

Source: Yum! Brands

YUM bounces back and forth between the “Buy” and “Hold” ranges. In August, it was upgraded from a “C+” to a solid “B” on the back of solid third-quarter earnings numbers.

Shares are up 27% year to date and 38% over the past two years. Plus, the company has paid out a dividend since 2004.

5. Jack in the Box (Nasdaq: JACK) was founded in 1951 and currently operates approximately 2,200 quick-service restaurants across 21 states and Guam.

This will be one to watch closely since just three days ago, the company announced that it will purchase popular West coast chain Del Taco. This $575 million deal includes the assumption of Del Taco’s current debt.

The company bounces back and forth between “Buy” and “Hold.” For a few days in 2020, its rating slid all the way down to a “D+.” But just last month, it was upgraded back to the “Buy” range with a “B-.”

Shares are down 5% year to date, but up 12% over the past two years. The company pays a dividend of 1.97%. And if you want to add Jack in the Box to your portfolio, this current price dip might just be the golden opportunity.

6. Starbucks (Nasdaq: SBUX) was founded in 1971 and now operates 16,826 stores in North America and 17,007 stores internationally. The company not only serves coffee but offers ground coffee and ready-to-drink beverages through other retailers worldwide.

For the most recent quarter, Starbucks saw net revenues up 31% to a record $8.1 billion. Comparable store sales were up 17% globally and up 11% compared to pre-pandemic levels.

The number of active Starbucks rewards memberships in the U.S. is up 28% and approaching 25 million.

The company spent a lot of 2020 in the “Hold” range but headed back to the “Buy” range in July. Now it’s sitting at a “B-.” Shares are up 14% year to date and 39% over the past two years. Plus, the company pays out a 1.5% dividend.

Remember, just because an industry is hurting doesn’t mean that we should write the whole thing off.

That’s where it’s especially helpful to have the stock screener on WeissRatings.com. I can quickly find the stocks that I just might want to add to my portfolio … and the ones that I don’t want to touch with a 39-and-a-half-foot pole.

Best,

Kelly Green

About the Research Analyst

Kelly completed the Series 7 and 66 securities licenses, and has worked in the financial publishing industry for eight years, specializing in income and options. She contributes regularly to the Weiss Ratings Daily Briefing.

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