In this article we discuss the 5 best restaurant stocks to invest in. If you want to read our detailed analysis of the restaurant industry, go directly to the 12 Best Restaurant Stocks to Invest In.
5. Brinker International, Inc. (NYSE: EAT)
Number of Hedge Fund Holders: 31
Brinker International, Inc. (NYSE: EAT) is one of the world’s leading restaurant companies headquartered in Coppell, Texas. The company owns Chili’s and Maggiano’s Little Italy restaurant chains. It operates over 1,600 restaurants, located in 29 countries.
In Q3 FY21, Brinker International, Inc. (NYSE: EAT) reported a net income of $36.4 million and an EPS of $0.78. The company generated $828.4 million in revenue, with company-operated restaurants accounting for $813 million. The operating margin in the third quarter also grew by 13.9%, compared with 12.8% during the same period last year. Chili’s company sales also increased to $749 million from $748.7 million in the prior-year quarter.
In Q4, Brinker International, Inc. (NYSE: EAT) expects revenue to be in the range of $950 million to $1.0 billion. The EAT stock has hit an all-time low in March 2020 but has recovered now and gained 181% in the past year. Recently, Wedbush Securities initiated its coverage on the stock with an ‘Outperform’ rating and an $81 price target. The stock has also been called a near-term winner by JP Morgan.
As of Q1 2021, 31 hedge funds tracked by Insider Monkey have positions in Brinker International, Inc. (NYSE: EAT), up from 28 in the previous quarter. Tremblant Capital is the leading shareholder of the company, with 2.3 million shares, worth $164.8 million.
4. Chipotle Mexican Grill, Inc. (NYSE: CMG)
Number of Hedge Fund Holders: 41
Chipotle Mexican Grill, Inc. (NYSE: CMG) is a chain of fast-casual dining restaurants based in Colorado, Denver. The company mainly serves Mexican-inspired menus such as burritos and tacos. It was founded in 1993 and has restaurants in the U.S., Canada, France, Germany, and the U.K. The company is widely popular for using natural and organic ingredients in its menu. In the first quarter, the company opened 40 new restaurants and expects 200 new restaurant openings in FY21.
In Q1 2021, Chipotle Mexican Grill, Inc. (NYSE: CMG) reported a net income of $153.1 million, up from $87.1 million during the same period last year. The EPS was recorded at $5.36, beating the consensus by $0.47. The revenue for the quarter stood at $1.7 billion, presenting a 23.4% year-over-year growth, with delivery services accounting for $25.5 million of the gross revenue. Comparable restaurant sales grew by 17.2% due to menu innovation and effective marketing. The company’s digital sales also grew and represented 50% of gross sales. The CMG stock has delivered a 48.3% return in the past year. The price target of the stock has been raised by many investment banks, including Cowen, BTIG, RBC Capital, etc. UBS also has a ‘Buy’ rating on the stock, with a $1700 price target, and sees the stock as a multi-year growth opportunity for the investors.
The number of hedge funds holding positions in Chipotle Mexican Grill, Inc. (NYSE: CMG) increased from 35 to 41 in the first quarter. The total value of these stakes is $3.03 billion. With over 1 million shares worth $1.5 billion, Pershing Square is the leading shareholder of the company.
Pershing Square Holdings Ltd. published its Q4 2020 investor letter and mentioned Chipotle Mexican Grill, Inc. (NYSE: CMG) in it. Here is what the firm has to say:
“Chipotle’s superb 2020 performance amid a challenging backdrop was due to the successful business transformation led by CEO Brian Niccol and his team. Improved digital access, which has been a pillar of management’s transformation strategy and a growing sales driver in recent years, enabled the company to serve customers with digital pickup and delivery as the pandemic began. Only three months after the onset of COVID-19 in the U.S., Chipotle returned to growth, achieving same-store sales growth of 6% in Q4, or 20% over two years.
The pandemic accelerated a shift in the company’s digital sales mix from just under 20% of sales at the end of 2019 to 70% in April, before settling to about 50% in July, a level which has been maintained through the start of 2021. Management believes that the majority of these digital sales are incremental, noting that in the 60% of stores with dining rooms open, 80% to 85% of digital sales gains are being retained while 50% to 60% of in-store sales have been recovered…” (Click here to view the full text)
3. Darden Restaurants, Inc. (NYSE: DRI)
Number of Hedge Fund Holders: 49
Darden Restaurants, Inc. (NYSE: DRI) is a Florida-based restaurant operator. The company owns some of the famous restaurants, including Olive Garden, LongHorn Steakhouse, Yard House, Seasons 52, etc. It has over 1,500 restaurants located worldwide. In Q4 2021, the company opened 30 new restaurants.
Darden Restaurants, Inc. (NYSE: DRI) announced its Q4 FY21 results on June 24, 2021. The company reported a revenue of $2.28 billion, up 79.5% from $1.27 billion during the same period last year. The EPS beat the market consensus by $0.24 at $2.03. Same-restaurant sales also grew massively by 90.4% as the pandemic-related restrictions have lifted. In the fourth quarter, the company increased its quarterly dividend by 25% at $1.10 per share and also repurchased shares of its common stock for approximately $38 million. In FY22, the company expects revenue of between the range of $9.2 to $9.5 billion and a 29% increase in same-restaurant sales. In the past year, the DRI stock has delivered a 105.6% return. After the strong quarter, many investment banks have raised their price target on the DRI stock, including MKM Partners, Morgan Stanley, Baird, Truist, BMO Capital, etc. Deutsche Bank raised its price target on DRI to $152 and appreciated the company’s strong fiscal results.
The number of hedge funds having stakes in Darden Restaurants, Inc. (NYSE: DRI) also increased this quarter to 49, from 42 in the previous quarter. The total value of these stakes is $1.31 billion. Citadel Investment Group is the largest shareholder of the company with over 1.4 million shares, worth $204.8 million.
2. Starbucks Corporation (NASDAQ: SBUX)
Number of Hedge Fund Holders: 61
Starbucks Corporation (NASDAQ: SBUX) is an American coffeehouse chain and roastery with headquarters in Seattle. The company was founded in 1971 as a retailer and roaster of ground coffee, tea, and spices. Over the years, the coffeehouse chain has expanded in over 80 countries with more than 32,000 stores.
In Q2 FY21, Starbucks Corporation (NASDAQ: SBUX) generated over $6.7 billion in revenue, up 11% from the prior-year quarter. The EPS was recorded at $0.62, beating the market consensus by $0.09. Global comparable sales grew by 15%. The U.S. remained the biggest market in the second quarter, accounting for $4.6 billion of the gross revenue, and saw a 9% growth in comparable sales. The board of the company also declared a quarterly dividend of $0.45 per share. In April, an analyst from BTIG raised the price target on SBUX stock to $130 and rated it as a ‘Buy’ due to improved sales in the U.S.
As of Q1 2021, 61 hedge funds tracked by Insider Monkey have positions in Starbucks Corporation (NASDAQ: SBUX), worth $4.4 billion. With 10.7 million shares worth $1.1 billion, Fundsmith LLP is the leading shareholder of the company.
Wedgewood Partners, an investment management firm, released its Q1 2021 investor letter and mentioned Starbucks Corporation (NASDAQ: SBUX) and other stocks in it. Here is what the firm has to say:
“As we have observed Starbucks through the unpredictable events of the past year, we believe all the things we liked about the Company’s competitive position before the pandemic have been turbocharged by the pandemic. We always have maintained the Company had no serious competition, anyway, and that in both large growth markets (U.S. and China), there was enormous fragmentation of share that would allow the Company to continue to expand through market expansion (especially in China) and through share gain versus small competitors. In fact, when we last discussed Starbucks, there was a lot of noise about competition in China from a newly established domestic competitor, Luckin Coffee, and that situation quickly dissolved into farce. In any case, had Luckin been a legitimate business, we had maintained that China was a massive market – and one in which coffee consumption was massively underpenetrated in comparison to other markets. We believed too that there was plenty of room for multiple large competitors to exploit.
The pandemic disaster over the past year truly highlights the Company’s financial strength in comparison to its small competitors, most of which struggled to survive, and many of which didn’t make it. While there is no perfect data, we have seen estimates from industry groups and restaurant distributors that as many as 15-20% of small, independent restaurants across the broad food and beverage industry may have closed permanently as a result of the pandemic, sadly. Starbucks not only survived due to its superior financial position; they also used its financial resources to invest in a variety of expanded or new capabilities, including the addition of drive-through capacity, new “walk-through” pick-up locations in urban areas, increased investment in technology to drive speed within the stores and drive-through lanes, and expansion of its loyalty program. These could have been viewed, prior to the pandemic, as a fairly big advantage in terms of convenience alone versus the Company’s small primary competitors. In the age of the pandemic, though, one might consider something like a drive-through an absolute necessity, as customers choose not to expose themselves to the interior of restaurants or to other people…” (Click here to view the full text)
1. McDonald’s Corporation (NYSE: MCD)
Number of Hedge Fund Holders: 67
McDonald’s Corporation (NYSE: MCD) is an American fast-food company headquartered in Chicago. The company started as a small drive-in facility and is now operating in over 120 countries. Founded in 1940, it serves over 63 million customers daily. Recently, McDonald’s Corporation (NYSE: MCD) has launched its loyalty program which would improve the sales and profits of the chain.
In Q1 2021, McDonald’s Corporation (NYSE: MCD) reported a net income of $1.5 billion, up from $1.1 billion during the same period last year. The EPS for the quarter stood at $1.92, beating the market estimate of $1.81. The consolidated revenue was recorded at $5.1 billion, $1.5 billion of which was generated by the digital segment. In the first quarter, global comparable sales grew by 7.5% in all segments, passing the 2019 levels.
Sales from the franchised restaurants jumped 10% at $2.87 billion. The company aims to maximize its marketing by strengthening its digital, drive-thru, and delivery services for a faster customer experience. The MCD stock has delivered a 27.01% return in the past year. Recently, Wells Fargo raised its price target on MCD stock and maintained an ‘Outperform’ rating.
At the end of Q1 2021, 67 hedge funds tracked by Insider Monkey have positions in McDonald’s Corporation (NYSE: MCD), up from 62 in the previous quarter. Southport Management is the biggest shareholder of the company with shares worth $672.4 million.
You can also take a look at 10 Best Hotel Stocks To Buy Now and 10 Biggest Fast Food Chains in the World.
