The restaurant group has been a minefield for investors in 2018 with traffic numbers in most casual dining restaurants on the decline. According to QSR Magazine, third-quarter restaurant sales are down 1.2 percent from two years ago. In that same time, restaurant traffic is down 5.7 percent. Traffic declines are a legitimate concern for restaurant investors, but some companies are faring better than others. KeyBanc analyst Eric Gonzalez says a handful of fast food stocks are picking up the slack in the restaurant industry. Here are eight fast food stocks on KeyBanc’s radar.
Bojangles (ticker: BOJA)
If restaurant stocks have underperformed in 2018, you certainly wouldn’t know it by looking at Bojangles. The southeastern fried chicken chain has gained 39 percent year-to-date, and Gonzalez says the company’s loyal customer base and track record of quality will likely keep the stock trending in the right direction in the long term. While the company’s focus on value promotions and core offerings has worked in recent quarters, Gonzalez says Bojangles will likely need to invest more aggressively in value platforms and technology over time. After the big 2018 run, KeyBanc has a “sector perform” rating for BOJA stock.
Chipotle Mexican Grill (CMG)
After years of lagging the restaurant group, Chipotle has come roaring back to life this year. CMG stock is up 49 percent in 2018, with much of the gains coming after the company hired former Taco Bell head Brian Niccol as its new CEO. Gonzalez says Niccol will soon have Chipotle headed in a better, more clear strategic direction, which includes modern marketing techniques, a better approach to testing and scaling ideas and a more aggressive push of off-premise and digital capabilities. KeyBanc has an “overweight” rating and $500 price target for CMG stock.
Dunkin Brands Group (DNKN)
Dunkin has delivered only modest growth for investors in 2018 as the company has worked through a transitional year in its long-term Blueprint for Growth initiative. However, Dunkin has laid the groundwork for an uptick in growth numbers starting in 2019. Gonzalez is forecasting same-store sales growth of only about 1 percent in 2018, but a return to 3 percent growth in same-store sales by 2020. Unfortunately, with the stock up 33 percent in the past year, he says growth prospects are already priced in. KeyBanc has a “sector perform” rating for DNKN stock.
McDonald’s Corp. (MCD)
After a huge 2017, McDonald’s stock has cooled in 2018, declining 4 percent year-to-date. Gonzalez says the McDonald’s turnaround effort is still in the early innings, and efforts to beef up its brand and regain and retain lost customers have yet to meaningfully impact the bottom line. The company’s Experience of the Future initiative includes adding in-store kiosks and increasing delivery and mobile ordering options. Gonzalez says the innovation should set McDonald’s up for sustainable, long-term same-store sales growth. Once store remodeling is complete, KeyBanc forecasts a double-digit total return profile for investors. KeyBanc has…
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