The restaurant industry has been under tremendous pressure this year owing to inflationary pressures. However, the holiday season might help its recovery as sales skyrocketed despite concerns over rising prices.
October’s same-store sales growth of 5.2% year-over-year matched September’s, with both tied posting the highest growth since March.
According to the latest Mastercard SpendingPulse, restaurant sales increased 23.3% year over year during the Thanksgiving weekend. Michelle Meyer, Chief Economist at Mastercard Economics Institute, said, “Restaurants did particularly well, reinforcing consumer demand for the experience economy.”
The sector’s outperformance is likely to continue with increased bookings for dine-ins, takeouts, and deliveries in the upcoming days. According to a survey, 57% of consumers plan to go out to eat at a restaurant, while 50% plan to order takeout or delivery for a gathering at home during the holidays.
Given this backdrop, it could be wise to invest in fundamentally sound restaurant stocks Bloomin’ Brands, Inc. (BLMN), Nathan’s Famous, Inc. (NATH), and Rave Restaurant Group, Inc. (RAVE) this week.
Bloomin’ Brands, Inc. (BLMN)
BLMN owns and operates fine dining, upmarket casual, and casual eateries through U.S. and International segments. The company oversees 1,013 full-service eateries, 157 franchised restaurants across 47 states, 156 full-service restaurants, and 172 franchised establishments globally.
On September 15, 2022, BLMN and Grubhub announced their partnership to expand all of BLMN’s concepts to the Grubhub Marketplace, accessible for pick up or delivery. Over 1,700 listings will be available nationwide, including more than 1,000 restaurant locations and 700 virtual kitchens.
BLMN is expected to benefit from increased sales, more orders, and increased earning opportunities for its delivery partners through Grubhub’s 32 million diners across the country.
For the fiscal 2022 third quarter ended September 25, 2022, BLMN’s total revenue grew 4.5% from the year-ago value to $1.06 billion, while its income from operations increased 245.8% year-over-year to $51.31 million. Net income rose to $33.05 million, a 554.3% increase year-over-year, and its EPS stood at $0.34, a 1,033.3% increase from the prior year’s period.
In terms of forward non-GAAP P/E, BLMN is currently trading at 8.79x, 31% lower than the industry average of 12.74x. Its forward EV/Sales multiple of 0.90x is 18.2% lower than the industry average of 1.10x. In addition, the stock’s forward EV/EBIT and EV/EBITDA ratios of 11.97x and 7.90x compare with industry averages of 12.41x and 9.16x, respectively.
The consensus EPS estimate of $0.64 for the fiscal fourth quarter (ending December 2022) indicates a 7.2% year-over-year improvement. The consensus revenue estimate of $1.12 billion for the current quarter indicates an increase of 7.3% from the year-ago quarter. The stock has surpassed the consensus EPS estimates in each of the four trailing quarters, which is impressive.
Shares of BLMN have gained 14.2% over the past six months and 9% over the past year to close the last trading session at $21.75.
BLMN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value and Quality. Within the B-rated Restaurants industry, it is ranked #8 of 44 stocks. Click here to see additional ratings of BLMN for Growth, Momentum, Stability, and Sentiment.
Nathan’s Famous, Inc. (NATH)
NATH is a wholesaler and retailer of products marketed under its Nathan’s Famous brand and trademarks through various distribution channels. The company’s segments include Branded Product Program, Product licensing, and Restaurant operations.
For the second quarter ended September 25, 2022, NATH’s total revenues increased 14% year-over-year to $37.50 billion, while its income from operations increased 33.3% year-over-year to $9.91 billion. Its net income grew 68.1% from the year-ago value to $5.96 billion.
The company’s adjusted EPS came in at $1.46, representing an increase of 69.8% from the prior-year quarter. In addition, its adjusted EBITDA increased 32.8% from the year-ago value to $10.32 billion.
The stock’s trailing-12-month EV/EBIT multiple of 9.91 is 21.4% lower than the industry average of 12.61. However, NATH’s trailing-12-month EV/Sales and Price/Sales ratios of 2.59 and 2.12 are significantly higher than the industry averages of 1.12 and 0.86, respectively.
The stock has gained 26.6% over the past six months to close the last trading session at $65.91.
NATH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability and Sentiment. Within the same industry, it is ranked first out of 44 stocks. Beyond what I’ve stated above, we also have NATH’s ratings for Growth, Value, and Momentum. Get all NATH ratings here.
Rave Restaurant Group, Inc. (RAVE)
RAVE operates and franchises pizza buffets, delivery/carry-out (delco), and express restaurants under the Pizza Inn trademark globally. It operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.
For the fiscal 2023 first quarter ended September 25, 2022, RAVE’s revenue increased 17.7% year-over-year to $3 million. Its net income rose 7.7% year-over-year to $307,000, while its EPS remained flat at $0.02 year-over-year. The company’s adjusted EBITDA increased 25.7% from the prior-year value to $542,000.
In terms of trailing-12-month P/E multiple, RAVE is currently trading at 3.46x, 74.1% lower than the industry average of 13.33x. Its trailing-12-month EV/EBIT multiple of 11.05x is 12.4% lower than the industry average of 12.61x. In addition, the stock’s trailing-12-month Price/Cash Flow ratio of 9x is 30.4% lower compared with the industry average of 12.93x.
RAVE’s EPS is expected to increase by 10% per annum over the next five years. The stock has gained 60.2% over the past six months and 55.5% year-to-date to close the last trading session at $1.57.
RAVE’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
RAVE has an A grade for Quality and a B for Value and Sentiment. Again, within the same industry, it is ranked #7.
Click here to see the other ratings of RAVE for Growth, Momentum, and Stability.
BLMN shares were trading at $21.40 per share on Tuesday afternoon, down $0.35 (-1.61%). Year-to-date, BLMN has gained 4.60%, versus a -14.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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