3 Stocks to Buy for Continued Restaurant Closures

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stocks to buy - 3 Stocks to Buy for Continued Restaurant Closures

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The novel coronavirus pandemic has been tough on all sectors but none more so than the restaurant industry. However, things are finally improving, as retail sales at US restaurants grew considerably in September. The stocks to buy in the sector are still those with successful delivery and take-out operations.

The sector added more than 200,000 jobs in September. With businesses opening up across different states, expect the trend to continue in the coming months.

Reports suggest the restaurant industry witnessed a $120 billion loss of revenue in the first three months of the pandemic. The number of Covid-19 cases are steadily rising across the country, averaging 54,000 every day since August. Hence, the threat of another wave of the virus cannot be taken lightly.

Therefore, investors should look to grab restaurant stocks which did well during the pandemic’s peak months. Let’s look at three that stand out:

  • BJ’s Restaurants (NASDAQ: BJRI)
  • Chipotle Mexican Grill (NYSE: CMG)
  • Dunkin’ Brands Group (NASDAQ:DNKN)

Stocks to Buy: BJ’s Restaurants (BJRI)

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BJ’s Restaurants is a California-headquartered restaurant chain operating in more than 28 states. One of its unique elements is that many of its restaurants have microbreweries. The dine-in experience at its restaurants is vital for the business is hampered by Covid-19. However, of-late, the company is bouncing back with its stores’ re-opening and an effective take-out service.

Hence, the 3-month return for BJRI stock relative to the S&P 500 is at an incredible 70%.

The second quarter was understandably tough for the company in line with the broader market. Sales and earnings per share fell 57.48% and 239.4%, respectively.  However, things are expected to improve with the re-opening of many of its outlets. In June, the company announced that it would be opening dining rooms in 85% of its outlets.

Additionally, the company holds minimal debt and has $80 million in cash. Moreover, the company is experimenting with its take-out business with dine-in/take-out combos and the introduction of beer subscription. These developments have investors excited, which is why the stock is growing impressively in the past few months.

Chipotle Mexican Grill (CMG)

a pedestrian walks past a Chipotle (CMG)
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Chipotle Mexican Grill is a Mexican fast-food restaurant chain which operates in North America and Europe. The fast-casual burrito chain is now a household name in the restaurant business.

Similar to other businesses in the sector, Covid-19 has weighed down its progression. However, investors continue to show a keen interest in the company as CMG stock’s 6-month returns relative to the S&P are 67%.

The star of Chipotle’s second-quarter results were its digital revenue sales, which offset weak comparable-store sales.  Digital revenue rose 216.3% year-over-year, which accounted for roughly 61% of total revenue. Comparable store sales dropped 9.8%, and overall revenue fell 4.8% from the same period last year. As a result, diluted EPS was 29 cents, a 91% decrease year-over-year.

The triple-digit growth in digital sales is attributable to its delivery partnerships with companies such as Grubhub (NYSE:GRUB). Additionally, its mobile application and other online sales channels also performed exceedingly well. Hence, third-quarter revenue estimates are healthy at $1.58 billion, representing a 12.6% boost year-over-year.

With the easing of lockdown restrictions, comparable-store sales should improve considerably along with digital sales.

Dunkin’ Brands Group (DNKN)

Dunkin' Donuts (DNKN) branded store front
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Dunkin’ Brands is a holding group operating fast-food and quick-service restaurants under its flagship brands Dunkin’ Donuts and Baskin Robbins. The Massachusetts-based company has more than 20,000 franchised outlets worldwide. Despite the pandemic’s crippling effects, DNKN stock’s 6-month returns relative to the S&P are at 21.7%.

The second quarter was expectedly tough for the company with sharp declines in revenue and earnings. Revenue dipped $287.4 million from $359.3 million last year. Additionally, net income was down to 44 cents per share from 71 cents per share a year ago. Moreover, the company closed a sizable number of stores due to the Covid-19 slowdown. It expects to close 800 stores in 2020.

However, the company remains in a stable position in the third quarter. The company has done well to control expenditures and operational expenses to limit cash burn. Meanwhile, take-out service combined with several short-term offers helped offset losses.

With the re-opening of the economy, the company plans to re-open restaurants and open new ones in more profitable areas.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.


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