Many restaurant stocks, especially those outside of the fast food sector, are bound to give investors more indigestion than profits in the months to come as the industry continues to be hurt by rising food prices and a deteriorating economic recovery. But there are a few outliers in the industry that pay dividends that are worth considering or have decent growth prospects.
For instance, Bob Evans (NASDAQ:BOBE), a casual dining chain with 563 family restaurants in 18 states, recently had its first positive quarter of same-store sales at its flagship brand in two-and-a-half years. Cost cutting, including shuttering underperforming stores, appears to be paying off with a 170-basis-point improvement in the food products segment’s adjusted operating margins. Bob Evans trades at a multiple of 14.35 — dirt-cheap by the industry’s standards. Wall Street analysts have an average price target of $38, more than 10% above the $33.47 level where it recently traded. The Columbus, Ohio-based company has a dividend yield of 2.39%.
Brinker International (NYSE:EAT) is the parent company of Chili’s Bar & Grill, where comparable store sales were little changed in the third quarter, and its smaller Maggiano’s Little Italy chain, where sales eked out a 3.5% gain. Its 15.88 multiple seems cheap, especially considering its goal of doubling EPS in five years. Wall Street has an average price target of $26, more than 10% above where it currently trades. The company’s dividend yields 2.43%.
Total costs and expenses at the Cheesecake Factory (NASDAQ:CAKE) rose 3.6% to $385.6 million while revenue gained 2.8% to $430.7 million. Its third-quarter earnings forecasts disappointed investors. Shares of the Calabasas, Calif.-based chain are down 8.2% this year. Wall Street analysts have an average share price target of $34.50 on the stock, a 23% upside to the $28.09 level where it currently trades. Its multiple of 17.35 seems reasonable.
Here are some pans.
Shares of Chipotle Mexican Grill (NYSE:CMG), which have surged more than 50% this year, are probably going to run out of gas (apologies to Mexican food lovers). The company recently reported disappointing second-quarter profit, and Wall Street analysts figure the stock is headed nowhere. Their average price target is $295, well below the $329.02 where it currently trades. Indeed, the shares appear very pricey at a multiple to this year’s forecasted earnings of 48.02.
Like every restaurant, profit margins at the Wall Street darling are getting squeezed badly by rising food costs. Although revenue surged in the last quarter by 22.4% to $571.6 million, total operating expenses gained 24% to $487.7 million from $391.9 million because of new restaurant openings. It’s hardly shocking that operating margins at the restaurant level fell 110 basis points to 25.8%. Although the chain did raise full-year 2011 guidance, its prospects seem limited.
Other Wall Street favorites, such as Panera (NASDAQ:PNRA), are in the same predicament. Total costs and expenses rose at the 1,567-unit chain rose 18.6% in its latest quarter to $393.9 million from $332 million a year earlier. Revenue gained 19% to $451.08 million. Its shares rose more than 12% this year, and it too issued bullish earnings guidance. The average price target for the Richmond Heights, Mo.-based company is $135, about a 16% upside potential from where it currently trades. With a multiple of 25.10, the shares seem pricey.
Jonathan Berr does not own shares in the companies that are listed.
