The U.S. retail sector has put up a great show, especially the restaurant industry, amid a surge in oil prices owing to the ongoing conflict with Iran. Higher gasoline prices have posed a major challenge for the restaurant industry.
However, sales still rose in April as consumers continued to spend aggressively on eating out. Given this situation, it would be ideal to invest in restaurant stocks with a strong online presence. We have selected three stocks, namely, Starbucks Corporation SBUX, Darden Restaurants, Inc. DRI and Aramark ARMK.
These stocks have seen positive earnings estimate revisions in the past 60 days, carry a Zacks Rank #1 (Strong Buy) or 2 (Buy), and are set for solid returns. You can see the complete list of today’s Zacks #1 Rank stocks here.
Restaurant Sales Jump
Sales at U.S. eating and drinking places totaled $101.0 billion in April, jumping 0.6% sequentially. This is the third straight month that restaurant sales have grown after a 0.7% and 0.1% jump in February and March, respectively.
Gasoline prices have surged substantially since the beginning of the war with Iran. According to the Energy Information Administration, the national average price for a gallon of regular gasoline climbed from under $3 in late February to $4.50 on May 18.
However, consumers have still been aggressively spending on eating out. Economists consider restaurant spending an important indicator of consumers’ financial health. The aggressive spending at restaurants helped boost the overall retail sales. Retail sales grew an impressive 0.5% in April.
Higher prices have created added challenges for restaurant owners, as customers become more careful with their spending and search for meals that offer better value. Quick-service restaurants, particularly those known for affordable pricing, have performed better than many others during these difficult conditions.
With more cost-conscious diners looking for inexpensive meal choices, competition in the value category has intensified. To attract and retain customers, brands are focusing on special deals, discounts and budget-friendly combo offers.
Even with these pressures, demand for low-cost dining options continues to stay strong. Many restaurant chains are boosting their marketing efforts, building partnerships and introducing fresh menu items to remain relevant and encourage repeat visits.
3 Restaurant Stocks With Upside
Starbucks Corporation
Starbucks Corporation is the leading roaster and retailer of specialty coffee globally. In addition to fresh, rich-brewed coffees, SBUX’s offerings include many complimentary food items and a selection of premium teas and other beverages, sold mainly through the company’s retail stores. Starbucks’popular brands include Starbucks coffee, Teavana tea, Seattle's Best Coffee, La Boulange bakery products and Evolution Fresh juices.
Starbucks’ expected earnings growth rate for next year is 12.7%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 90 days. SBUX currently has a Zacks Rank #1.
Darden Restaurants
Darden Restaurants, Inc. is one of the largest casual dining restaurant operators worldwide. DRI has operations in the United States and Canada with more than 1,700 restaurants.
Darden Restaurants’ expected earnings growth rate for the current year is 11.1%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. DRI currently has a Zacks Rank #2.
Aramark
Aramark offers food services, facilities management, uniform and career apparel to health care institutions, universities, school districts, stadiums and businesses. ARMK operates primarily in three segments: Food and Support Services North America, Food and Support Services International and Uniform and Career Apparel.
Aramark’s expected earnings growth rate for the current year is 19.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 60 days. ARMK currently has a Zacks Rank #2.
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Starbucks Corporation (SBUX): Free Stock Analysis Report
Darden Restaurants, Inc. (DRI): Free Stock Analysis Report
Aramark (ARMK): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).