The restaurant industry is thriving, driven by rapid technology adoption, with consumers embracing online platforms for online ordering and delivery services and a strong demand for fast food options. In recent years, cloud kitchens have gained significant popularity to meet changing consumer preferences, reflecting a shift in how people dine out.
Given these factors, investors could consider investing in top restaurant stocks Carrols Restaurant Group, Inc. (TAST), RCI Hospitality Holdings, Inc. (RICK), and Denny's Corporation (DENN), which have the potential for solid market performance.
The restaurant industry is expected to reach a milestone of more than $1.10 trillion in sales this year, employing around 15.70 million people in the United States. Restaurant operators seem optimistic about sales growth, with nearly 8 in 10 predicting increased or stable sales compared to 2023.
Furthermore, GenZ consumers heavily favor technology in restaurants, with 64% considering it positively impactful, compared to 46% of all adults.
Moreover, the food service market is witnessing substantial growth fueled by increasing demand for fast food and the expansion of various food chains worldwide. These trends are bolstered by the rising popularity of full-service and quick-service restaurants, further fueling market development.
The global food service market is expected to grow at a CAGR of 10.8% to reach $5.42 trillion by 2030.
The global cloud kitchen market is further growing considerably due to the rising population, increasing disposable income, and the convenience of online food delivery. This trend reflects changing consumer preferences, driving demand for cloud kitchen services that offer convenience and adaptability to meet evolving market demands.
The global cloud kitchen market is projected to grow at a CAGR of 11.7% to hit $177.85 billion by 2032.
Considering these conducive trends, let’s examine the fundamentals of three Restaurants industry stock picks, beginning with the third choice.
Stock #3: Carrols Restaurant Group, Inc. (TAST)
TAST franchises Burger King and Popeyes restaurants across 23 states in the United States, providing quick-service dining options in various regions.
On January 8, 2024, TAST reported preliminary sales results for the fourth quarter of 2023, with total restaurant sales increasing to $470.40 million, marking a 5.7% increase compared to the same period in 2022.
In the full year, the company’s total restaurant sales came in at $1.88 billion, an 8.4% increase compared to 2022, with comparable restaurant sales for Burger King® restaurants growing by 9.3% and for Popeyes® restaurants by 10.1%.
For the third quarter that ended October 1, 2023, TAST restaurant sales increased 6.5% year-over-year to $475.76 million. Its adjusted net income amounted to $9.99 million and $0.16 per share, compared to an adjusted net loss of $7.29 million and $0.14 per share in the same quarter of the prior year.
Furthermore, the company's adjusted EBITDA grew 136.9% year-over-year to $41.87 million.
Street expects TAST's revenue and EPS to grow 3.1% and 6.6% year-over-year to $1.93 billion and $0.57, respectively, for the fiscal year ending December 2024. Also, the company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has surged 105.4% over the past nine months and 348.1% over the past year to close the latest trading session at $9.50. It is currently trading above the 50-day and 200-day moving averages of $9.45 and $7.19, respectively, indicating an uptrend.
TAST’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock has an A grade for growth and a B for Value. Within the Restaurants industry, TAST is ranked #11 out of 43 stocks.
For additional ratings on TAST’s Momentum, Stability, Sentiment, and Quality, click here.
Stock #2: RCI Hospitality Holdings, Inc. (RICK)
RICK operates hospitality businesses, including upscale adult nightclubs and Bombshells Restaurant & Bar establishments. Additionally, the company manages industry conventions, trade publications, and social media platforms focused on the adult entertainment industry.
On February 28, 2024, RICK declared a quarterly cash dividend of $0.06 per common share for the fiscal 2024 second quarter, payable on March 29, 2024. The company pays $0.24 annually, which translates to a yield of 0.44% on the prevailing price level, higher than its four-year average dividend yield of 0.40%.
The company’s dividend payouts have grown at CAGRs of 17% and 14.9% over the past three and five years, respectively. Moreover, the company boasts a five-year record for consecutive years of dividend growth.
During the fiscal 2024 first quarter, which ended December 31, 2023, RICK’s total revenues increased 5.6% year-over-year to $73.91 million. The company reported non-GAAP net income and adjusted EBITDA of $8.13 million and $17.47 million, respectively. Moreover, it reported a non-GAAP EPS of $0.87 for the quarter.
Street anticipates RICK's revenue to increase 5.5% year-over-year to $309.97 million for the fiscal year ending September 2024. Its EPS for the ongoing year is expected to be $4.54. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters.
RICK’s stock has declined marginally intraday to close the last trading session at $55.
RICK’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
RICK has a B grade for Quality. Within the same industry, it is ranked #6.
Click here for RICK’s additional ratings for Growth, Value, Momentum, Stability, and Sentiment.
Stock #1: Denny's Corporation (DENN)
DENN operates franchised full-service restaurant chains under the DENN's and Keke's Breakfast Cafe brands in the United States and internationally through its subsidiaries.
On January 8, 2024, DENN partnered with Franklin Junction to provide 250 domestic DENN’s restaurants with geographic exclusivity to utilize Franklin Junction's Host Kitchen® platform for virtual restaurant expansion. This collaboration aims to enhance DENN's market presence and off-premises sales channels through innovative guest experiences.
DENN reported a total operating revenue of $115.35 million in the fourth quarter that ended December 27, 2023. The company posted adjusted net income and EBITDA of $7.80 million and $18.56 million, respectively. Also, it generated an adjusted free cash flow of $7.39 million during the quarter.
For the fiscal year 2024, DENN anticipates opening 40 to 50 restaurants, including 12 to 16 new Keke's locations, with an adjusted EBITDA range of $85 million to $89 million.
Analysts estimate DENN's revenue and EPS to grow by 1.7% and 8.9% year-over-year to $471.72 million and $0.64 for the fiscal year ending December 2024, respectively.
DENN’s shares have surged 1.1% intraday and 2.9% over the past six months to close the last trading session at $8.64.
DENN’s POWR Ratings reflect its robust prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
DENN has a B grade for Value and Quality. Within the same industry, it is ranked #5.
In addition to the POWR Ratings stated above, one can access DENN’s additional Growth, Momentum, Stability, and Sentiment ratings here.
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TAST shares were trading at $9.51 per share on Wednesday morning, up $0.01 (+0.11%). Year-to-date, TAST has gained 20.94%, versus a 10.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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