Zacks Investment Ideas feature highlights: Jamba, Domino's Pizza and Denny's
CHICAGO, Sept. 10, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Jamba, Inc. (Nasdaq:JMBA-Free Report), Domino's Pizza, Inc. (NYSE:DPZ-Free Report) and Denny's Corporation (Nasdaq:DENN-Free Report).
3 Restaurant Stocks to Satisfy Your Hunger
August turned out to be the best month in terms of sales growth for the Restaurant industry since Feb 2012. According to Black Box Intelligence and People Report, the industry registered same-store sales growth of 2.1% in August, a significant improvement from July's growth rate of 0.5%.
Victor Fernandez, Director of Insights and Knowledge for TDn2K said "To put this into perspective, the last time year-over-year same-store sales jumped by over 1.0% from one month to the next was from February to March of this year, as the industry climbed its way up from the terrible winter sales results."
This positive same-store-sales growth was not limited to just certain parts of the country. However, this upbeat August same-store sales data compared unfavorably with the last two years. The industry's same-store-sales increased by 2.3% in August over the past two years.
Traffic declined by 0.5% in August. However, that is a 1.1% improvement from July. This was the best traffic result since Nov 2013. Separately, the Dow Jones U.S. Restaurants & Bars Index (DJUSRU) gained almost 0.7% in August after a drop of 2.1% in July.
Such a vigorous performance was due to the economy gaining traction. Disposable personal income, a key determinant for the restaurant industry, accelerated to almost 2% annually in July. Another key factor is average gas prices, which dipped below the $3.50 per gallon mark. This is good news since, according to Black Box Intelligence, prices staying at this level negatively affects restaurant sales.
Apart from strong August sales, the restaurant industry showcases an optimistic outlook for the second half of 2014.
Promising Growth Trends
As of July 2014, the National Restaurant Association's Restaurant Performance Index (RPI) stood at 101. It was the 17th successive month the index remained above 100, indicating expansion in the key industry indicators – same-store sales, traffic, labor and capital expenditures.
The Current Situation Index came in at 100.7 in July. It was the 5th consecutive month the Index remained above 100. This also connotes expansion in current trends in the four industry indicators. The Expectations Index stood at 101.2 in July, the 21st instance of it remaining above 100. This shows a buoyant outlook among restaurant operators for the coming months.
About 47% of restaurant operators expect higher sales in six months, way above 13% of those who expect sales to go down. Over 50% of operators are planning capital expenditure in the months ahead. People Report's latest numbers also showed restaurant jobs increased 4.4% year over year in July, up 0.6% from June.
Moreover, restaurant operators have started finding ways to tackle food cost inflation that has been plaguing the industry in recent times. Due to the highly price sensitive nature of the sector, operators are trying to cut costs, by changing what they serve on plate.
Combatting Rising Food Costs
Here are some of the strategies operators have lately adopted:
Expanding Contracts: Mancy's Steakhouse – with its four restaurants in Toledo, Ohio – entered into a 12-month contract with its top meat supplier in order to curtail future price rise.
Redirection: Some operators have started to distract customers from beef items by luring them to pork and chicken items that has lower cost. Wholesale beef prices are forecasted to jump by 8%-9% in 2014. Stonewood Grill & Tavern, based in Ormond Beach, for example have added two chicken dishes and shrimp scampi to their non-beef menu.
Going Small: Some operators are also reducing the size of steaks. Take Mancy's Steakhouse for example – they have three news steaks on the menu that are typically of smaller size than what one could have found in the last few years.
3 Restaurant Stocks to Buy Now
Jamba, Inc. (Nasdaq:JMBA-Free Report) is a California-based restaurateur providing beverage and food offerings. In the past two months, the Zacks Consensus Estimate for the current year revised 16.2% higher.
Current year expected earnings growth rate for this Zacks Rank #1 (Strong Buy) stock is 377.8%, way above the industry average of 14.3%. The forward price-to-earnings ratio (P/E) of the stock is 33.8, lower than the industry average of 45.6. The stock gained 4% in the last four weeks.
Domino's Pizza, Inc. (NYSE:DPZ-Free Report) operates as a pizza delivery company through its subsidiaries in the United States and internationally. Over the past two months, the stock has seen the Zacks Consensus Estimate for the current year moving 1.1% higher.
Moreover, current year expected earnings growth rate for this Zacks Rank #2 (Buy) stock is 17.2%, above the industry growth rate. The stock trades at a forward P/E of 26.6x, a significant discount to the industry average. The stock gained 5.6% in the last four weeks.
Denny's Corporation (Nasdaq:DENN-Free Report) is a full-service pancake house/coffee shop/fast casual family restaurant chain. Over the past two months, the Zacks Consensus Estimates for the current year witnessed a 5.9% upward revision.
This year's expected earnings growth rate for this Zacks Rank #2 (Buy) stock is 15.3%. It trades at an attractive P/E of 19.7x. The stock gained 2.8% in the last four weeks.
Bottom Line
It will be a prudent idea to bet on these three eateries that are well-positioned to outpace the industry and are fundamentally strong enough to withstand risks. Further, increasing global presence and increasing supply chain revenues will help these eateries stay afloat.
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