Automation and the growing online food delivery market are prone to strengthen the restaurant industry in the long run. As such, the fundamentally strong shares of McDonald’s Restaurant (MCD), Nathan’s Famous (NATH) and Rave Restaurant (RAVE) may very well be ideal buys for 2023. However, given the macroeconomic headwinds, fundamentally weak Dutch Bros (BROS) corporations are currently best avoided. Read more.
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While labor shortages disfigure the restaurant industry, Aaron Allen & Associates forecasts that 82% of seats in restaurants may be replaced to some extent by robots. Automation is probably going to avoid wasting US fast-food restaurants greater than $12 billion in annual salaries, the group said.
Moreover, the growing importance of hassle-free online delivery, various discount offers, convenient payment options, etc. is driving the web food delivery market within the United States. The IMARC Group expects the market to achieve USD 46.50 billion by 2028, showing approx. CAGR 10% within the years 2023-2028.
Moreover, the growing online delivery services have also led to the event of ghost kitchens (or cloud/dark kitchens). Euromonitor predicts that the ghost kitchen market can be price $1 trillion by 2030.
Given the industry’s solid long-term outlook, McDonald’s Corporation’s fundamentally strong restaurant stock (MCD), Nathan’s Famous, Inc. (NATH) and Rave Restaurant Group, Inc. (TO BE IMPRESSED BY) may be perfect purchases.
However, given macroeconomic challenges, including labor and food inflation, and provide chain issues, Dutch Bros Inc. (BRETHREN) can now best be avoided.
McDonald’s Corporation (MCD)
MCD and its franchisees are known for running restaurants world wide. The company operates in three segments: United States (USA); International Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL).
On October 13, MCD announced a ten% increase over the corporate’s previous quarterly dividend, reflecting confidence within the Accelerating the Arches growth strategy and continued deal with driving long-term profitable growth for all stakeholders.
MCD pays $6.08 annually as dividends. This translates right into a profitability of two.26% in comparison with the present price. This is a mean of 4 years dividend rate is 2.27%. The company increased its dividend payout for 21 consecutive years.
MCD franchise restaurant revenue increased 4.6% year-on-year to $3.71 billion within the third quarter ended September 30, 2022. The company’s total operating costs and expenses decreased 3.3% year-on-year to three, USD 11 billion, while EPS was USD 2.68.
Analysts expect MCD’s EPS for the fiscal yr ending December 2022 to be $9.95, up 7.3% year-on-year, while its revenue is anticipated to be $23 billion. In addition, it has outperformed consensus EPS estimates in three of the last 4 quarters, which is impressive.
MCD’s 12-month EBIT margin of 43.70% is 449.1% higher than the industry average of seven.96%. Its leveraged FCF margin of 17.77% is well above the industry average of 1.35%.
The stock has gained 5.8% over the past three months, closing the last trading session at $269.29.
MCD POWR rankings reflect its promising prospects. Stocks have an overall B rating, which translates right into a Buy with our proprietary rating system. POWR rankings are calculated based on 118 various factors, each weighted to an optimal degree.
MCD can be rated A for quality and rated B for stability and sentiment. It ranks sixteenth out of 46 B-rated corporations Restaurants industry.
To access additional MCD growth, value, and momentum rankings, click here.
Nathan’s Famous, Inc. (NATH)
NATH operates within the catering industry because the owner of franchise restaurants under the Nathan’s Famous brand. The company also sells products bearing the Nathan’s Famous trademarks through various distribution channels.
On December 14, NATH announced the launch of a latest franchise sales initiative specifically aimed toward those struggling restaurant owners offering a cheap conversion of their location to Nathan’s Famous.
The conversion program is anticipated to offer flexibility in restaurant design, equipment and infrastructure, often using the restaurant’s current layout to scale back costs and open quickly. Potential franchisees may also benefit from additional revenue opportunities with the ghost kitchen brands, Arthur Treacher’s and Wings of New York.
The company pays a dividend of USD 1.80 per yr, which at the present price translates right into a rate of return of two.51%, and the common 4-year dividend yield is 2.3%. Its dividend payouts have grown at a CAGR of 11.5% during the last three years. In addition, it paid dividends for 4 consecutive years.
Total NATH revenue increased 14% year-on-year to $37.50 million within the second fiscal quarter ended September 25, 2022. Adjusted EBITDA and operating income increased 32.8% and 33.3% year-on-year to 10,000,000, respectively USD .32 million and USD 9.91 million. In addition, its net income and earnings per share were $5.96 million and $1.46 million, up 68.1% and 69.8% year-on-year, respectively.
Equity EBIT margin over 12 months of 26.13% is 228.3% higher than the industry average of seven.96%. Its leveraged FCF margin of 11.04% is 720.2% higher than the industry average of 1.35%.
The stock has gained 47.4% over the past nine months, closing the last trading session at $71.55.
NATH’s solid outlook is reflected in its POWR rankings. The stock has an overall A rating, corresponding to a robust buy in our proprietary rating system.
NATH is rated A for quality and rated B for moods and stability. It ranks first in the identical industry.
click here to see additional POWR rankings for NATH (growth, value and momentum).
Rave Restaurant Group, Inc. (TO BE IMPRESSED BY)
RAVE operates and franchises pizza buffets, delivery/takeaways and express restaurants under the Pizza Inn trademark worldwide. It operates in three segments: Pizza Inn Franchising; Pie Five franchises; and company-owned restaurants.
For the fiscal first quarter ended September 25, 2022, RAVE revenue increased 17.7% year-on-year to $3.01 million. The company’s net income increased by 7.7% year-on-year to PLN 307 thousand. USD. Adjusted EBITDA increased by 25.8% year-on-year to PLN 542 thousand. USD. In addition, its EPS was $0.02.
RAVE’s 12-month net income margin of 72.18% is well above the industry average of 5.18%, and its leveraged FCF margin of 21.45% is comparable to the industry average of 1.35%.
The stock gained 73.5% over the past yr to shut the last trading session at $1.70.
RAVE has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
RAVE is rated A for quality and B for value and sentiment. In the identical industry, it ranks third.
In addition to the rankings above, we also gave RAVE rankings for growth, momentum, and stability. Earn all RAVE rankings here.
Dutch Bros Inc. (BRETHREN)
BROS operates and franchises drive-thru stores. It offers Dutch Bros espresso-based cold and warm drinks and cold brew coffee products, in addition to Blue Rebel energy drinks, tea, lemonade, smoothies and other beverages through company-owned stores and online channels.
BROS’ operating loss was $6.38 million for the nine months ended September 30, 2022. Net loss for a similar period was $16.44 million, or $0.08 per share.
Analysts expect BROS’ EPS to fall 51.5% year-on-year to $0.15 within the fiscal yr ending December 2022. Additionally, BROS didn’t surpass revenue consensus estimates in three of the last 4 quarters.
Its 12-month gross profit margin of 23.52% is 33.9% lower than the industry average of 35.58%, and its EBITDA margin of three.47% is 68.7% lower than the industry average of 11, 09%.
The stock has fallen 32.8% over the past nine months to shut at $34.42 within the last trading session.
BROS’s POWR rankings reflect this bleak outlook. Stocks are rated D overall, reminiscent of Sell on our proprietary rating system.
The shares are rated D for stability, value and quality. It ranks forty third in the identical industry.
In addition to the POWR rankings we listed above, you possibly can see the BROS rating for Mood, Momentum, and Growth here.
MCD shares remained unchanged in Tuesday’s pre-session trading. MCD has gained 2.19% for the reason that starting of the yr, in comparison with the S&P 500 index’s gain of 4.76% over the identical period.
About the writer: Kritika Sarmah
Her interest in dangerous instruments and love of writing made Kritika a financial analyst and journalist. She earned a BA in Commerce and is currently pursuing a CFA program. Its fundamental approach is designed to assist investors discover untapped investment opportunities.
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