The stock market is beginning to show subtle signs of broadening beyond just the AI-driven tech plays. Though it’s hard to tell how much recent strength will help propel non-tech names, I still think it’s tough to pass up the value options to be had in the restaurant stocks. At this juncture, restaurant stocks look to be in a sweet spot. They’re not too expensive, even though some of them have participated in the market’s hot first-half run, and they could keep chugging higher even if the recession finally does happen.
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Whether or not this bull market has a long life, the following restaurant plays, I believe, could be in to deliver tasty results over the coming years, given today’s modest price tags. The analyst community agrees, too.
Therefore, let’s check in with TipRanks’ Comparison Tool to see where analysts stand on three Strong-Buy-rated restaurant plays in the early innings of the second half.
Darden (NYSE:DRI)
Darden isn’t exactly the type of restaurant play you’d want to jump into in the face of a potential economic downturn. The company is behind many up- and mid-scale restaurant chains, including Ruth’s Chris Steakhouse on the high-end and Olive Garden on the casual side. Despite macro headwinds and recession fears, though, Darden stock has held its own incredibly well. As a result, I’m staying bullish.
Clearly, there’s an appetite to go out to eat. Over the past year, shares of DRI are up a stellar 41.3%, bringing the stock to a new high of $164 and change. The stock performance doesn’t indicate a looming recession. If a downturn never materializes, many analysts expect Darden to climb even higher, thanks to its powerful dine-in restaurant brands.
For Fiscal 2023, sales rose almost 9%, while earnings per share surged just north of 8%. That’s impressive, especially considering all the recession chatter we encountered last year. Looking ahead, Darden expects same-store sales growth to stay in the 2.5%-3.5% range. That’s also impressive, given our current position in the market cycle.
At 20.5 times trailing price-to-earnings, shares of DRI are still below the restaurant industry average of 32.75 times. Is Darden more of a discretionary-centered restaurant play? Sure, but it’s not hard to imagine the strong brands taking share in the higher-end space. My takeaway? Investors may wish to consider taking a stake, or steak (pun intended), in the name, even at these heights.
What is the Price Target for DRI Stock?
TipRanks has a Strong Buy rating on Darden based on 16 Buys, and four Holds assigned in the past three months from Wall Street analysts. The average DRI stock price target of $176.05 implies 7.3% upside potential.
Papa John’s International (NASDAQ:PZZA)
Papa John’s is a better casual restaurant play for investors seeking less turbulence come the next economic storm. Further, the company’s impressive delivery capabilities make it a solid way to play takeout and delivery. Undoubtedly, the rise of food-delivery platforms has made any type of food deliverable in a hurry.
Still, nothing quite holds up during delivery like a hot pizza. In that regard, I still view the pizza scene as a great place to consider investing in amid recent weakness. As such, I am staying bullish on PZZA stock.
It’s been an ugly past year and a half for Papa John’s. The stock got nearly cut in half from peak to trough. Now, shares are down 45% from the top. Despite the recent Q1 earnings beat and encouraging unit growth guidance (1,400-1,800 new stores expected to be added by 2025), Papa John’s remains in the doghouse at around $73 and change. Still, I think the market has it wrong and is discounting the positives in the latest report that may be the start of a promising trend in the right direction.
No matter how you slice it, Papa John’s is a compelling option at a 26.3 times forward (33.2 times trailing) price-to-earnings multiple.
What is the Price Target for PZZA Stock?
Papa John’s is a Strong Buy on TipRanks, comprised of seven Buys and one Hold rating assigned in the past three months. The average PZZA stock price target of $96.43 entails a 31% gain from here.
Dine Brands Global (NYSE:DIN)
Speaking of battered restaurant plays, we have Dine Brands, the firm behind IHOP and Applebee’s. The stock has steadily sunk since its 2021 peak. Since that peak, shares have crumbled more than 40% over the span of two years. I think the sell-off is overextended, and I view shares as one of the better value options in the dine-in restaurant scene today. Mostly due to the stock’s valuation, I’m staying bullish.
At writing, shares trade at 10.8 times trailing price-to-earnings, miles below the 32.75 times industry average. With a solid 3.5% dividend yield, DIN stock definitely looks like a deal that’s too good to pass up right now.
Still, there’s baggage that value investors should be aware of. Wedbush recently slashed the stock to a “Hold” rating, noting it sees Q2 sales slowing. Indeed, inflation, macro headwinds, and all the sort have weighed on Dine far more heavily than peers. Once the economic tides turn, however, I believe DIN stock has more room to recover, making it an attractive pick for patient value seekers.
What is the Price Target for DIN Stock?
Dine Brands is a Strong Buy, with four Buys and one Hold rating. The average DIN stock price target of $79.80 implies a huge 40.2% gain.
The Takeaway
Stock performance in the restaurant scene amid macro headwinds has been quite divided, with some stocks holding up while others have fallen. Currently, though, analysts expect the most upside from DIN stock (40.2%) for the year ahead.
