The world's largest coffee chain Starbucks Corporation (SBUX) in Seattle, Wash., roasts and retails its specialty coffee, bottled coffee drinks, and a line of ice cream worldwide. The company delivered a year-over-year increase in revenues and EPS in its fiscal year 2022 first quarter but failed to surpass analysts’ estimates. The stock has declined 5.1% in price over the past month. The company said growing inflationary pressure, supply chain constraints, and labor shortages have forced it to increase its prices. Also, the company witnessed an unusual level of store closures in January.
As a result, analysts have revised their estimates lower for the current quarter. Furthermore, the company has announced that it will raise its prices further this year. However, given the current volatility in the stock markets, this overvalued stock might suffer a price retreat in the near term. SBUX’s 3.26x forward Price/Sales is 215.6% higher than the 1.03x industry average.
A steep decline in COVID-19 cases has allowed restaurants to attract increased foot traffic of late. Furthermore, continuing contactless ordering, drive-thru, and dine-in trends should drive the industry’s sales. The global quick-service restaurant market is expected to grow at a 5.1% CAGR to $815.60 billion by 2026. Given this backdrop, we think it could be wise to bet on Darden Restaurants, Inc. (DRI), Texas Roadhouse, Inc. (TXRH), and Bloomin' Brands, Inc. (BLMN), which we think are well-positioned to outperform SBUX in the coming months.
Darden Restaurants, Inc. (DRI)
DRI in Orlando, Fla., owns and operates full-service restaurants. The company operates a variety of seafood and Italian restaurants under many brand names.
For its fiscal year 2022 second quarter, ended Nov. 28, 2021, DRI’s sales increased 37.2% year-over-year to $2.27 billion. The company’s operating income came in at $242.90 million, up 101.2% from the prior-year period. While its net earnings increased 101.3% year-over-year to $193.20 million, its EPS grew 102.7% to $1.48. It had $746.30 million in cash and cash equivalents as of Nov. 28, 2021.
Analysts expect DRI’s EPS to improve 116.8% year-over-year to $2.12 for its fiscal year 2022 third quarter, ended Feb. 28, 2022. It surpassed the Street’s revenue estimates in each of the trailing four quarters, which is impressive. The $2.54 billion consensus revenue estimate the same fiscal year represents a 33.9% rise from the prior-year period. The company’s EPS is expected to grow at a 30.1% rate per annum over the next five years. The stock has declined 0.3% in price over the past month to close yesterday’s trading session at $140.47.
DRI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth and Quality. Click here to see the additional ratings for DRI’s Stability, Value, Sentiment, and Momentum.
DRI is ranked #3 of 44 stocks in the B-rated Restaurants industry.
Texas Roadhouse, Inc. (TXRH)
TXRH in Louisville, Ky., operates casual dining restaurants internationally. The company offers starters, salads, steaks, ribs, dinners, sides, burgers, and sandwiches under the Texas Roadhouse, Bubba's 33, and Jaggers names. As of Dec. 28, 2021, it operated 566 domestic restaurants and 101 franchise restaurants.
For its fiscal year 2021 fourth quarter, ended Dec. 28, 2021, TXRH’s total revenues increased 40.4% year-over-year to $895.59 million. The company’s income from operations came in at $64.84 million for the quarter, representing a 217.9% rise from the year-ago period. TXRH’s net income increased 171.4% year-over-year to $53.06 million. Its EPS came in at $0.76, up 171.4% from the prior-year period. And as of Dec. 28, 2021, the company had $335.65 million in cash and cash equivalents.
The $0.92 consensus EPS estimate for its fiscal year 2022 first quarter, ending March 31, 2022, represents a 1.1% year-over-year improvement. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Analysts expect TXRH’s revenue to improve 30.9% year-over-year to $970.50 million for the same fiscal year. The company’s EPS is expected to grow at a 14.6% rate per annum over the next five years. TXRH has gained 4.2% in price over the past month to end yesterday’s trading session at $90.95.
TXRH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Value and Quality. Click here to see the additional ratings for TXRH (Stability, Sentiment, Momentum, and Growth).
TXRH is ranked #13 in the Restaurants industry.
Bloomin' Brands, Inc. (BLMN)
BLMN owns and operates casual, upscale casual, and fine dining restaurants internationally. The Tampa, Fla.-based company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse & Wine Bar. As of Dec. 26, 2021, the company owned and operated 1,013 full-service restaurants and franchised 157 restaurants across 47 states.
For its fiscal year 2021 fourth quarter, ended Dec. 26, 2021, TH’s total revenue increased 28.9% year-over-year to $1.05 billion. The company’s adjusted operating income came in at $9.24 million for the quarter, up 95.3% from its year-ago period. BLMN’s adjusted net income came in at $56.88 million, representing a 2845.4% rise from the prior-year period. Its adjusted EPS increased 2900% year-over-year to $0.60. The company had $87.59 million in cash and cash equivalents as of Dec. 26, 2021.
Analysts expect BLMN’s EPS to be $0.73 for its fiscal year 2022 first quarter, ending March 31, 2022, representing a 1.4% year-over-year improvement. The company’s revenue is estimated to be $1.12 billion, indicating a 13.9% rise from the prior-year period. It surpassed the consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to grow at a 6% rate per annum over the next five years. The stock has gained 15.4% in price over the past month to close yesterday’s trading session at $24.09.
BLMN’s POWR Ratings reflect its solid prospects. It has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Value and a B grade for Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for BLMN’s Stability, Momentum, Sentiment, and Growth here.
BLMN is ranked #7 in the Restaurants industry.
SBUX shares were trading at $91.64 per share on Thursday afternoon, down $1.13 (-1.22%). Year-to-date, SBUX has declined -21.26%, versus a -8.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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