On the Margin
Restaurant stocks make a modest recovery

Restaurant stocks make a modest recovery

This post is part of the On the Margin blog.

Restaurant stocks did not have a great year in 2015, especially if you wipe out the first three months of the year or so. Most stocks declined last year, and many of them lost 25 percent of their value.

They seem to have recovered, at least in the early part of 2016. Gainers have outnumbered losers in the first two and a half months of 2016 by two to one.

The NRN Restaurant Index is up more than 5 percent so far this year. By comparison, the broad S&P 500 Index is down slightly for the year.

To be sure, recovery is relative. Plenty of companies have seen their stock prices plunge in 2016 — consider that 12 companies’ stocks have fallen by more than 10 percent so far, which is the same number of companies whose stock has risen by more than 10 percent. 

Much of the increase in restaurant stocks has come over the past month. Early in the year, amid considerable market volatility, a number of companies re-established new 52-week lows. Stocks have stabilized since then, and many companies beat expectations for earnings or sales or both.

Bob Evans Farms Inc., for instance, has been one of the top performing stocks in the early part of this year, up nearly 19 percent as of Tuesday, even though same-store sales at its flagship restaurant chain fell 3.6 percent in the fourth quarter. Similarly, Noodles & Company is up nearly 30 percent so far this year despite weak sales performance.

On the flip side, same-store sales rose in the double digits at Shake Shack Inc., and it is down nearly 14 percent on the year in part because investors didn’t like the sales expectations it had set.

Indeed, investors have reset their expectations for a number of chains that have recently gone public. Shake Shack and Habit Restaurants Inc., which each had their initial public offerings just more than a year ago, are among the year’s biggest decliners so far. Investors have decided that both chains were overvalued following early rallies in their stock prices.

The largest restaurant stocks also appear to be pulling the index up. McDonald’s Corp., which has, by far, the largest market capitalization of any restaurant stock on Wall Street, is up more than 4 percent on the year, continuing a strong run for that stock under CEO Steve Easterbrook.

Since Easterbrook was given the job more than a year ago, the stock is up nearly 40 percent.

Yum Brands, meanwhile, is up nearly 7 percent. The operator of KFC, Taco Bell and Pizza Hut has seen its stock recover some thanks to its decision to spin off its China operations along with improved performance at both KFC and Pizza Hut.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

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