U.S. retail sales have had a roller-coaster ride over the past few months as tariff fears and high inflation have compelled consumers to spend cautiously. However, that hasn’t stopped consumers from spending lavishly at restaurants and bars.
Sales at U.S. restaurants and bars have grown at a solid pace, except for occasional hiccups. Also, trade war tensions have eased substantially, and inflation is finally showing signs of cooling, which are likely to boost the restaurant industry in the near term.
Given this scenario, it would be wise to invest in restaurant stocks such as BJ's Restaurants, Inc. BJRI, Wingstop WING and CAVA Group, Inc. CAVA. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
Restaurant Sales Jump in April
The Commerce Department reported that sales at U.S. restaurants totaled $99.4 billion in April, up 1.2% month over month after increasing a solid 3% in March. Economists view dining out as a key indicator of household finances.
The solid jump in April indicates that the economy is still on solid ground, and despite price challenges, consumers are willing to shell out more at restaurants and bars. The jump in retail sales is being backed by a steady rise in retail sales. Retail sales rose 0.1% in April after jumping 1.7% in March.
Inflation has also started showing signs of cooling lately. The consumer price index (CPI) rose 0.2% in April after falling 0.1% in March for the first time since May 2020. Year over year, CPI increased 2.3%, the smallest gain since February 2021. The April reading suggests that inflation is on track to reach the Federal Reserve’s 2% target.
Also, consumers were worried about the impact of sweeping tariffs announced by President Donald Trump in early April. However, he has since temporarily paused the tariffs and said that negotiations are ongoing with several countries. This has somewhat eased trade war tensions. Also, investors are hopeful that slowing inflation could see the Federal Reserve resume its rate cut campaign in September, which definitely bodes well for the restaurant industry.
3 Restaurant Stocks With Upside
BJ's Restaurants, Inc.
BJ's Restaurants, Inc. owns and operates a chain of high-end casual dining restaurants in the United States. BJRI’s menu offers a wide range of dining options, including everyday lunch and dinner, special occasions and late-night business.
BJ's Restaurants’ expected earnings growth rate for the current year is 23.8%. The Zacks Consensus Estimate for current-year earnings has improved 9% over the past 60 days. Presently, BJRI has a Zacks Rank #2.
Wingstop
Wingstop franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. WING offers classic wings, boneless wings, as well as tenders that are cooked-to-order, and hand-sauced-and-tossed in various flavors.
Wingstop’s expected earnings growth rate for the current year is 6.3%. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 60 days. WING presently has a Zacks Rank #2.
CAVA Group, Inc.
CAVA Group, Inc. is a category-defining Mediterranean fast-casual restaurant brand, which brings heart, health and humanity to food. CAVA is based in Washington.
CAVA Group’s expected earnings growth rate for the current year is 38.1%. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the past 60 days. CAVA currently has a Zacks Rank #2.
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