3 Restaurant Stocks to Buy While Chipotle Mexican Grill, Inc. (CMG) Burns

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stocks to buy - 3 Restaurant Stocks to Buy While Chipotle Mexican Grill, Inc. (CMG) Burns

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Wall Street is increasingly pessimistic about Chipotle Mexican Grill, Inc. (CMG)  turning things around, as CMG stock caught its second sell call in as many days Thursday.

cmg stocks to buyIt’s not just that Chipotle is struggling to recover from its food-borne illness disaster, analysts say. The fast-casual restaurant chain has problems that pre-date the scandal.

Jefferies downgraded CMG stock from “hold” to “underperform” (sell, essentially), in part because analysts expected earnings multiples to revert to the mean. Now that same-store sales have collapsed — despite massive promotional food giveaways — solidifies the investment bank’s bearish view.

As InvestorPlace’s John Divine wrote recently, CMG stock is in major trouble.

Happily, the restaurant sector offers more promising stocks to buy than CMG. After all, Chipotle’s problems are of its own making. It’s not like there’s some industry-wide issue hurting restaurant stocks.

If you’re looking for better restaurant stocks to buy, McDonald’s Corporation (MCD), Restaurant Brands International Inc (QSR) and Sonic Corporation (SONC) look like better alternatives.

Here’s why:

Restaurant Stocks to Buy

McDonald’s Corporation (MCD): Not long ago, market watchers were wondering if McDonald’s could ever come back. The food was unfashionable with millennials, and the stores and service weren’t competitive.

And now none of that matters thanks to hash browns and Egg McMuffins.

All-day breakfast has been a huge hit for MCD, and it’s still not done riding this success. Indeed, the hamburger chain is now researching the possibility of offering the full breakfast menu all day long.

MCD stock is up about 25% since it launched all-day breakfast about six months ago and sentiment hasn’t been this good in years.

Restaurant Brands International Inc (QSR): QSR can thank its Burger King chain for it’s solid start to the year. The rejuvenated brand has found an unlikely hit with hot dogs on the menu, and the rest of the business is likewise doing well. Restaurant Brands crushed quarterly profit estimates thanks to soaring same-store sales at Burger King. Best-selling menu items led a 7% rise in this critical industry metric. BK is also benefiting from a value menu with higher margins.

QSR changes hands at 25 times forward earnings, but Wall Street expects 2017 earnings per share to grow almost 20%. That’s a reasonable valuation.

Sonic Corporation (SONC): Sonic stock also looks a bit pricey at first glance. After all, SONC has a forward price-to-earnings multiple of 21, which is about 24% pricier than the broader market. However, once you consider SONC’s growth rate, it looks like a good deal. Analysts expect EPS to increase almost 20% this year and more than 35% next year.

SONC is down about 1% for the year-to-date after a hot ride in 2015, but that underperformance shouldn’t last. The stock is too cheap for its growth prospects. It’s only a matter of time before the market comes around.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/stocks-to-buy-chipotle-stock-cmg-mcd-qsr-sonc/.

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