CHICAGO, Aug. 13, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Grubhub (NYSE:GRUB-Free Report), Potbelly (Nasdaq:PBPB-Free Report), Chipotle Mexican Grill (NYSE:CMG-Free Report), Noodles & Co. (Nasdaq:NDLS-Free Report) and Buffalo Wild Wings (Nasdaq:BWLD-Free Report).
Quick Service Restaurant Review
Staying home and calling for take-out is the new going out to eat. At least that is what I am hearing from the market, but getting a burrito is clearly the exception.
As a lead off to this investment idea about the QSR's (Quick Service Restaurant's) I wanted to highlight one stock that has been pushing up to new highs and is a Zacks Rank #2 (Buy). Grubhub (NYSE:GRUB-Free Report) is a newer stock and estimates have only been out for a few months. That lack of time has not stopped analysts from moving numbers higher in a big way over the last few months.
The Zacks Consensus Estimate for GRUB started out as $0.12 back in April but kicked higher to $0.19 in May. As of today, we have the 2014 estimate at $0.22. The 2015 Zacks Consensus Estimate has also moved higher in lock step with the 2014 number. Starting off at $0.22 in April it also kicked higher the next month and is currently at $0.36.
Investors still need a strong stomach for GRUB if they are concerned with valuations. GRUB trades at 323x trailing PE vs. a 24x industry average and an equally stiff 180x forward PE compared to a 28x industry average. GRUB is still in its first year of trading, so I would expect those PE multiples to come down as the estimates and earnings move higher.
My Belly Stings
Back on July 9, Potbelly (Nasdaq:PBPB-Free Report) pre-announced a weaker than expected quarter. The company noted that the flats platform underperformed expectations even as the company increased advertising spend to help the launch.
The company went on to beat estimates by a penny on August 5, and the stock traded higher by 3.5% in the session following the report.
As a Zacks Rank #4 (Sell) you would expect to see earnings estimates drop in a big way. That is partially true for PBPB as the 2014 Zacks Consensus Estimate has dropped from $0.39 in January to $0.34 in April and is now at $0.19. Similarly the 2015 Zacks Consensus Estimate has dropped from $0.54 in January to $0.44 in April and then down to $0.26 in July. In August the 2015 Zacks Consensus Estimate actually ticked higher to $0.27, putting its Zacks Rank of #4 (Sell) in position for a possible upgrade.
Year to date, PBPB is down about 48% and many of its issues were highlighted on a recent Bear of the Day article.
Above Board Burrito
Among the best performing QSR's we have Chipotle Mexican Grill (NYSE:CMG-Free Report) which is a Zacks Rank #1 (Strong Buy). The company recently reported a blowout quarter that was the envy of the QSR group.
On July 21, the CMG reported earnings of $3.50, $0.45 better than the Zacks Consensus Estimate for a positive earnings surprise of 14.75%. Maybe more impressive than the earnings beat was the outperformance on the topline as the company topped $1B in sales for a quarter for the first time. In reporting sales of 1.05B, CMG beat estimates by $70M for a 7.2% positive revenue surprise.
Shares of the burrito maker soared higher by 11% in the session following the report, and have remained on the upward trajectory. Analysts moved price targets higher for the stock following the huge report, with the bearish analysts calling for $600 (UBS and Miller Tabak) and the bullish calls reaching $750 (BofA Merrill and Argus).
Beaten with a Wet Noodle
Tomorrow investors will see an earnings report from another name in the QSR group. Noodles & Co. (Nasdaq:NDLS-Free Report) will report after the close and the Zacks Consensus Estimate is calling for revenue of $103M and $0.15 in EPS.
Like several other QSR's, NDLS has been beaten down this year, losing around 28% of its market capitalization. On the day before the earnings report the stock was trading at an all-time low of $25.00, down nearly 50% from its all-time high of $49.75.
NDLS is currently a Zacks Rank #3 (Hold) but it is not the only stock in the QSR group that is making investors sick to their stomachs.
Buffalo Wild Wings (Nasdaq:BWLD-Free Report) recently beat the Zacks Consensus Estimate by 5 cents, but investors were looking for a bigger boost from the World Cup and the stock was down more than 11% in the session following the release.
Investors seem to be attracted to eating at home or going out for a burrito. Same-store sales at most other QSR's are trending lower and even a beat may not be good enough given the current taste that investors have in their mouths. Valuations are key, and while PBPB and NDLS have forward multiple over 50, so does CMG, but that stock justifies the multiple with excellent same store growth.
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