Are you keeping an eye on undervalued restaurant stocks? In 2022, the full-service restaurant business was projected to have a global market size of $1.5 trillion. By 2030, it was predicted that this amount will increase to as much as $1.8 trillion, data from Statista shows. As a result, investors cannot ignore restaurant stocks, especially the ones with upside and strong ratings from analysts.
Against this backdrop, the first stock we’ll examine is slated for a historic 50-for-1 stock split, which will make its shares more accessible following record-breaking sales. Strategic acquisitions and a diverse portfolio that includes casual dining giants have helped the second business beat Wall Street’s predictions. Finally, an entertainment-focused eating chain is shaking up the industry by combining gaming and dining and expanding domestically and internationally.
Let’s dive in!
Chipotle Mexican Grill (CMG)
For stockholders of Chipotle Mexican Grill (NYSE:CMG), the upcoming stock split on June 25 is very exciting. After the split, shares will restart trading again on June 26.
The first 50-for-1 stock split in Chipotle’s 30-year history is meant to make shares more appealing to a wider range of people. Sales and growth broke records, pushing the price to an all-time high, necessitating the split.
On the financial front, a solid first quarter of 2024 saw comparable sales rise 7%, and transaction growth exceed 5%. Fourth-quarter sales are up 15% to $2.5 billion compared to 2022. The 8% rise in comparable restaurant sales was due to 7% greater transactions, 1% higher average checks, and to a lesser degree, new restaurant openings. Digital sales made up 36% of food and beverage revenues.
In terms of the global market, Chipotle is partnering with Alshaya Group to launch its first shop in Kuwait. This is the company’s first step into the Middle East, which expands its worldwide reach in a market valued at approximately $34 billion, with projections showing growth to $56 billion by 2027.
With so much going for it, it’s no surprise CMG’s upside is at around 2%, but I will want investors to concentrate on the highest price target of $3,600, instead, considering the growth of its digital business, implying an upside of 14%, nicely complimenting its “moderate buy,” rating.
Darden Restaurants (DRI)
The first three quarters of fiscal year 2024 were strong for Darden Restaurants (NYSE:DRI), beating Wall Street projections, but the stock is down 8% this year, giving it a premium position among undervalued restaurant stocks.
Company profits rose considerably in the second quarter. Adjusted net profits per share rose 21% to $1.84 from the previous year. Adding Ruth’s Chris Steak House and improving operations helped.
The firm earned $350.9 million before income tax in the third quarter, with adjusted net profits per share rising from $2.34 to $2.62. The reported revenue from operating enterprises increased 11% from year to year.
The market’s overall picture supports Darden’s optimism. The corporation expects inflation to fall, lowering prices and increasing profits.
Due to its multiple brands, like Olive Garden, LongHorn Steakhouse, and Ruth’s Chris Steakhouse, Darden can adjust to changing client preferences despite inflation. Despite lower-income consumers lowering restaurant spending across all brands, LongHorn Steakhouse reported a 2.3% same-store sales growth, per the latest quarterly numbers.
Darden also announced a new $1 billion share-buying program and a $1.31 quarterly dividend payout, translating into a 3.35% yield, which compares very favorably to the sector average of around 1%.
Dave & Busters Entertainment (PLAY)
Dallas-based Dave & Busters Entertainment (NASDAQ:PLAY) launched an app recently that lets consumers bet on Mario Kart and Skee Ball, making headlines.
PLAY certainly needed the boost as pro forma total comparable store sales fell 7% in Q4 compared to 2022 due to declining demand for its entertainment and eating experience amid inflationary tendencies.
However, after the quarter, the market mood is bullish. Dave & Buster’s Q4 EBITDA was $151.8 million. That was around 10% higher than last year and surpassed experts’ projections.
In addition, the firm has grown globally and inked new partnerships to strengthen its Asia-Pacific presence.
In the fiscal year, the firm established 16 new stores, including six in Q4. It also expanded locally and internationally, like entering the Dominican Republic.
In fiscal 2023, the business repurchased 8.5 million shares for $300 million. The board’s given the green signal for $100 million more share repurchases, bringing its total share buyback authorization to $200 million.
After the report dropped, Truist Securities upped Dave & Buster’s price target to $78 per share from $75, anticipating its innovative sales strategies to offset macroeconomic concerns.
Truist Securities is not the only analyst bullish on this quality pick; seven Wall Street analysts rank PLAY a “Moderate Buy”. From $52.82, these analysts expect a 12-month average target price of $76, 44% potential upside, giving it a premium position among undervalued restaurant stocks.
On the date of publication, Faizan Farooque 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.
