Restaurants were hit hard by the pandemic, which forced them to close or operate at reduced capacity. Unfortunately, many smaller restaurants went out of business in 2020 and the years that followed. However, many quick-service restaurant chains bounced back fast, as did their stocks. And while they weren’t spared by 2022’s bear market, there are a few restaurant stocks to buy that are surging in 2023.
Leading chains posted strong earnings for this year’s first quarter thanks to a combination of consumer loyalty and people turning to lower-priced menu offerings during times of economic uncertainty and financial stress. This trend is likely to persist in 2023, which should translate into even higher share prices.
While a number of restaurant stocks are trading near their 52-week highs, Wedbush analyst Nick Setya said there are still some that offer compelling valuations.
Here are three restaurant stocks to buy that are likely to continue their ascent this year.
|QSR||Restaurant Brands International||$73.06|
|CMG||Chipotle Mexican Grill||$2,047.12|
Restaurant Brands International (QSR)
Restaurant Brands International (NYSE:QSR) owns several popular quick-service brands, including Burger King, Popeyes Louisiana Kitchen, Firehouse Subs and Tim Hortons, which is named after a former hockey player and, naturally, the most popular restaurant chain in Canada. Year to date, QSR stock is up 13%, bringing its 12-month gain to 41%.
Restaurant Brands recently issued strong first-quarter results that beat analysts’ expectations by a wide margin. Earnings per share (EPS) of 75 cents surpassed the 64-cent consensus forecast among analysts who cover the company. Revenue was up 9.6% year over year, coming in at $1.59 billion compared to the $1.56 billion that was expected. Overall same-store sales grew 10.3%, led by double-digit growth at Burger King and Tim Hortons.
Burger King has been particularly strong of late, with Burger King U.S. President Tom Curtis telling CNBC the chain is experiencing record sales of Whoppers thanks to a marketing campaign that went viral.
Tim Hortons recently revamped its menu and loyalty program, and its mobile app is the most popular food and drink app in Canada. Meanwhile, Popeyes Louisiana Kitchen reported same-store sales growth of 5.6% in Q1, fueled by the return of its popular Ghost Pepper Wings, and Firehouse Subs saw its same-store sales rise 6.1%.
QSR is trading just below its 52-week high of $74.20, made last week. And it is within spitting distance of its all-time high just below $80, made in 2019.
McDonald’s (NYSE:MCD) is also trading near its highs, having just made a new record high of $298.86 last week. The stock is up 12% year to date and 21% over the past 12 months.
Like the owner of its main rival Burger King, McDonald’s is seeing strong demand, which led to a better-than-expected first-quarter earnings report. Adjusted EPS of $2.63 beat analysts’ consensus estimate by 30 cents. Revenue, which was up 4% year over year to $5.9 billion, also beat expectations of $5.59 billion.
Q1 same-store sales growth of 12.6% easily exceeded calls for 7.9% in the U.S. and 8.2% internationally. Management attributed this to higher traffic at its restaurants, which was up in the U.S. for the third quarter in a row, and the company raising menu prices.
McDonald’s has proven to have strong brand loyalty and pricing power, or the ability to raise prices without losing customers. The restaurant chain also tends to do well during economic downturns, as consumers gravitate to its cheaper meal options.
Chipotle Mexican Grill (CMG)
If there’s one restaurant chain outpacing all others right now, it is Chipotle Mexican Grill (NYSE:CMG). The company’s share price has gained 55% in the past 12 months, including a 48% increase this year. CMG stock has been surging since the company reported stellar first-quarter earnings at the end of April, and announced bullish forward guidance and an aggressive expansion plan. Analysts and investors seemed to like everything Chipotle’s management had to say when releasing their Q1 numbers.
Specifically, Chipotle reported net income of $291.6 million, or $10.50 per diluted share, up 84% from a year ago. Revenue rose 17% to $2.4 billion, also beating expectations, fueled by same-store sales growth of 10.9%.
Management said it’s now pausing price increases at its restaurants, after upping them 10% YOY in Q1. The company announced it is testing new grills that cook faster and more efficiently and reiterated plans to open between 255 and 285 new restaurants this year. All of this was music to investors’ ears, sending shares to new record highs.
Chipotle said that traffic at its restaurants rose 4% in Q1, reversing a decline seen during the previous quarter. Digital orders at the quick-service chain accounted for nearly 40% of its sales. The company opened 41 new retail locations during the quarter, 83% of which include drive-thru lanes reserved exclusively for digital order pick-ups.
Looking ahead, Chipotle said it expects same-store sales growth in the mid-to-high single digits for all of this year.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.