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What Inflation? 3 Restaurant Stocks Bucking Market Trends
Stock Analysis & Ideas

What Inflation? 3 Restaurant Stocks Bucking Market Trends

Story Highlights

While inflation continues to remain high, these restaurant operators are generating higher sales. Shares of these companies have outperformed the broader market.

Free EAT Analysis

The persistently high inflation and its impact on consumers’ discretionary spending are taking a toll on the overall market. However, this isn’t the case with Wingstop (NASDAQ:WING), Brinker International (NYSE:EAT), and Cheesecake Factory (NASDAQ:CAKE). These restaurants are witnessing strong sales despite macro headwinds, while their stocks have outperformed the broader markets in 2023. 

Wingstop, Brinker International, and Cheesecake Factory stocks have gained approximately 24%, 22%, and 20% year-to-date, respectively. The S&P 500 Index (SPX) is up slightly over 3%.

While these stocks have outperformed the broader market, let’s look at what the future has in store. 

Is Wingstop a Good Stock to Buy?

Despite macro headwinds, Wingstop continues to deliver solid sales, marking the 19th consecutive year of same-store sales growth. What’s unique is that Wingstop’s revenue is driven by higher transactions, reflecting its brand’s strength and resiliency. Moreover, a significant decline in the cost of bone-in chicken wings supports its margins and strong earnings growth.

Wingstop’s management expects the momentum to sustain in 2022 and plans to open more new units. Also, its margins are expected to increase, led by lower food costs. 

WING stock has a Moderate Buy consensus rating on TipRanks, reflecting seven Buy and 11 Hold recommendations. Further, analysts’ average price target of $186.29 implies 9.01% upside potential.

What is EAT’s Price Target?

Brinker International, the leading casual dining restaurant company and owner of Chili’s and Maggiano’s brands, is benefitting from strong sales, menu price increases, and moderating commodity inflation. The biggest revenue driver has been Maggiano’s off-premise business (includes sales where meals are consumed at home rather than at the dining get-togethers and celebrations).

Its hike in the menu price, improving traffic, momentum in the off-premise business, and expected moderation in inflation will likely support its sales and earnings growth

However, analysts remain sidelined, given the recent rally in EAT stock (it gained about 59% in six months). It has received three Buy, Eight Hold, and Two Sell recommendations for a Hold consensus rating. Analysts’ average price target implies 3.89% downside potential. 

What’s the Prediction for CAKE Stock?

Cheesecake Factory is benefitting from strong consumer demand at its new restaurants, incremental pricing, and continued positive sales trend despite menu price increases. 

During the Q4 conference call, the company stated that the recent business trends indicate that its Q1 top line could be between $850 million and $880 million, higher than the $793.7 million reported in the prior-year quarter. This reflects the benefits of the recent menu price hike. 

While CAKE stock has appreciated in 2023, analysts’ average price target of $36.33 implies 4.85% downside potential. The stock sports a Hold consensus rating based on one Buy, Nine Hold, and four Sell recommendations. 

Bottom Line

While solid demand and menu price hikes have driven the financials of EAT and CAKE, WING stands out as most of its growth is driven by transactions. Also, the company is gaining from the decline in food costs. This is well reflected in analysts’ Moderate Buy consensus rating on WING stock and higher upside potential based on the average price target. 

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