3 Restaurant Stocks to Buy Before Earnings

There is a group holding up amongst the negativity in the stock market. Restaurant names are separating themselves from others by showing relative strength compared to the indices.

For most, it’s hard to justify going out and spending money on a $50 steak after your 401k has taken a hit. People do have to eat, but they don’t have to necessarily go out to a fancy restaurant to eat. While lower stock prices may be worrisome enough to cut back on larger expenses, cheaper gas is actually putting more money in pockets. A direct beneficiary is the causal restaurant and fast food space because of their ability to give families dining options that won’t damage the wallet.

Looking over the last three months we see that four restaurant stocks have held up against the S&P 500. While the index is down just under 10%, these names are either down small or over up 5-20%. The resilience shown here shows us that the market believes the American consumer isn’t dead and that these companies are a beneficiary of cheaper energy prices.

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Panera Bread reported strong earnings February 9th leading me to look at the company itself and three of its peers with Zacks ranks of #1 and #2. It wasn’t just the earnings that stood out, but the stock reaction of 5% to the upside that interested me.

Panera  Bread (PNRA - Analyst Report) is a Zacks Rank #3(Hold) that owns and operates over 1900 bakery cafes retail bakery-cafes in the US and Canada. The St. Louis based company offers made-to-order sandwiches, soups, coffee, pasta, salads and other complimentary dishes.
 
Panera has a market cap of $4.6 Billion and a Forward PE of 28. Earnings for Q4 came in at 1.88 versus the 1.78 expected, with revenue coming in light at $691 Million verse the $696 Million expected.  The company went on to guide fiscal year EPS +2-5% year over year and comparable net bakery-café sale +3.5-4.5%.

CEO Ronald Shaich went into detail on the call: "Our strategic plan is working. Our comps of 3.6% in Q4 2015 and 6.4% in the first 41 days of Q1 2016 are leading indicators of the impact our initiatives are having. Further, we are confident that our results will continue to strengthen as the startup and transition costs associated with our initiatives begin to crest and our sales continue to grow. We now expect the EPS growth we saw in Q4 2015 will improve in 2016 and further accelerate in 2017. Today, we are confident we are on a path to return to sustained double-digit earnings growth”

The company also commented that they didn’t think that the Chipotle (CMG - Analyst Report) issues helped Panera in the quarter, but it was an interesting thought.
 
While Panera might not be a Zacks ranked #1 or #2, there are three other companies that could see a jump into earnings. This group has a strong Zacks Industry Rank of 31 out of 265, the top 12% of all industries.

Jack In The Box (JACK - Analyst Report) is a Zacks Rank #1(Strong Buy) that operates and owns franchises Jack in the Box and Qdoba restaurants. The company reports earnings on February 17th and could be a direct beneficiary of the Chipotle calamity through its Qdoba restaurants.

JACK has a market cap of $2.5 Billion with a Forward PE of 20. The company pays a 1.67% dividend and expects EPS growth to come in around 15%.

Over the last 90 days, fiscal year 2016 estimates have been raised 2.2%. While this isn’t a huge number, there is a chance the company surprises to the upside if burrito eaters shifted to Qdoba, away from Chipotle.

An upside surprise is nothing new for the company, as JACK has beaten the number five out of the last six quarters. Another beat this quarter should propel the stock higher.

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Carrols Restaurant (TAST - Snapshot Report) is a Zacks Rank #1(Strong Buy) that owns and operates more than 700 restaurants under the Burger King brand. Carrols Restaurant Group also owns and operates two Hispanic Brand restaurants, Pollo Tropical and Taco Cabana.

The company has a market cap of $450 Million with a PE of 28. Carrols sports Zacks Style Scores with a “B” in Value and “A” in growth.

Earnings are on March 3rd, with the Zacks Consensus Estimate at $0.03 for the current quarter. Over the last 90 days, estimates for fiscal year 2016 have been revised 15.5% higher. Carrols is on a nice streak of EPS surprises to the upside, beating in seven straight quarters. More importantly, the stock price has followed the earnings performance higher.

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Cracker Barrel (CBRL - Snapshot Report) is a Zacks Rank #1(Strong Buy) that operates and develops Cracker Barrel Old Country Store restaurant and retail concept. The restaurant atmosphere consists of a rustic old country-store design with a separate retail area. Headquartered in Tennessee, the company has over 630 stores in 42 states, which are located near highways across America.

The company pays a nice 3.29% dividend with a market cap of $3.2 Billion and a Forward PE of 18. Earnings are on February 23rd and there are reasons to believe that the company will continue its amazing streak of EPS surprises to the upside.

Cracker Barrel has had eighteen quarters in a row with an EPS beat, helping the stock climb over 300% higher during that timeframe. Analysts continue to be excited about the company’s prospects as estimates for 2016 has been revised 1.5% higher over the last 30 days.

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In Summary

If the relative strength of these stocks isn’t enough to bring investors to the table, upcoming earnings should be.  The money saved at the pump is going directly into the American consumer pockets and turning into spending cash at restaurants. Speculators that choose to get in before earnings reports will be rewarded with a Panera type moves.