NEW YORK —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
Although so far this year restaurant stocks have been battered along with the general market—and more pummeling is expected as first-quarter results are released—rumblings of a rebound in stock prices are growing louder in some corners. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
(To view the charts featured in this week's print issue, click here) —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
“While consumer fundamentals remain weak, most investors fear missing the early-cycle recovery story, which is likely to support many in the restaurant industry as well as broader retail in the interim,” restaurant securities analyst Jeff Bernstein of Lehman Brothers said in a research note to clients. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
Restaurant stocks have been hit hard as the economy has slowed drastically in the face of the housing market bust, higher costs for everything from gas to groceries, and larger consumer debt loads. And while operators often claim not to be concerned with a company’s stock price, share values affect executive compensation, the ability to raise capital and a company’s vulnerability to activist investors or other shareholder groups that can distract management. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
Ruby Tuesday Inc., which has lost more than 77 percent of its market value since this time last year, admitted that building shareholder value is the ultimate end game for a public company, even if the road to successfully improving stock price is through additional sales leverage and profit at the store level. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
“Higher sales, as we all know, will produce higher earnings that will create shareholder value,” Ruby Tuesday founder and chief executive Sandy Beall said in a conference call earlier this month. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
He pointed ahead to 12 months from now when sales are expected to improve and profit flow-through can be achieved. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
So far this year, however, many companies’ market values have been reduced dramatically, according to a recent report by investment bank Houlihan Lokey. The report found that through March casual-dining companies tallied an aggregate market capitalization of $14.32 billion, down 43.6 percent from a year ago. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
Family-dining companies’ total market capitalization was $3.86 billion, down 30.7 percent from last year. And for quick-service companies the market capitalization totaled $117.83 billion, down 24.1 percent from a year earlier. That decline occurred even with star performers like McDonald’s and Chipotle boasting market capitalization increases of 18.5 percent and 84.5 percent, respectively. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
Since January, the NRN Stock Index, a market-capitalization-weighted composite of all restaurant companies traded on the New York, Nasdaq and American exchanges, had fallen 3.8 percent until a surge the week of April 14, which brought the year-to-date change up to 1 percent. The NRN Index is still off about 3.8 percent from a 52-week high hit in December. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
In comparison, the Dow Jones Industrial Index was down 2.1 percent from the same time last year, the S&P 500 was down 6.9 percent, and the NYSE composite was down 4.1 percent. The relatively well-performing NRN Index could indicate that investors are not fleeing the sector and are indeed expecting an upswing. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
By comparison, Wachovia Capital Markets’ restaurant index, which includes 34 companies, has declined 4.1 percent since January, still out-performing declines of 9.1 percent for the S&P 500, 9.7 percent for the Russell 2000 and 13.8 percent for the Nasdaq Composite. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
Expectations for a weak first-quarter earnings season may place certain restaurant operators in the crosshairs of another round of stock price plunges. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
At press time, few restaurant companies had prereported quarterly revenues, same-store sales, or earnings projections for the quarter ended in March, giving little insight into what the first quarter, or first half of the year, may hold. Analyst Bernstein said performance is likely to get worse before it gets better. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
“While we believe estimates are finally becoming more cautious for the first half of 2008…we continue to believe a significant uptick in earnings growth in the second half of 2008 is unlikely,” he said in a research note. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
He added that consensus estimates are for casual-dining earnings-per-share performances to decelerate from dips of 2 percent to 3 percent in the first half of the year to drops of 14 percent to 15 percent in the second half. Quick-service companies will perform much better, he said, and earnings-per-share growth will accelerate from 7 percent to 8 percent in the first half to 18 percent to 19 percent in the second half. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.
The near-universal view that casual-dining companies will report weak results has led to an increased percentage of short investors, according to analyst John Glass at Morgan Stanley. The short holdings could actually prop up stock prices at certain companies that report weak results. Glass reported that eight companies have short interest of more than 20 percent, with P.F. Chang’s China Bistro holding the highest short interest, at 60 percent. —Investors looking to purchase restaurant stocks at their lowest points and ahead of an upswing projected by year’s end could prop up industry stock prices in the near term, despite the sector’s continued weak performance, some veteran analysts say.