As people gradually return to dining out now that nearly half of the U.S. population is fully vaccinated against COVID-19, the restaurant industry is witnessing a steady rebound in sales. Also, because many restaurant operators adapted quickly to changing consumer preferences by establishing robust home-delivery networks and drive-throughs, their order volumes have increased significantly.
Furthermore, owing to an increase in consumer spending, the sector is expected to continue growing in the coming months. The global foodservice market is expected to reach $3978.83 billion by 2026, registering a 4.7% CAGR. As popular restaurant chains continue to invest heavily in innovating their food categories to meet consumers’ changing needs and bulk up their digital, delivery, and curbside channels to win more customers, they should garner sustained growth.
Therefore, we think financially sound Mexican restaurant companies, Chipotle Mexican Grill Inc. (CMG), Yum! Brands Inc. (YUM), Fiesta Restaurant Group Inc. (FRGI), and Del Taco Restaurant Inc. (TACO), with their iconic brands, are well-positioned to optimize their revenues.
Chipotle Mexican Grill Inc. (CMG)
CMG, which is based in Denver, Colo., along with its subsidiaries, owns and operates a chain of Mexican restaurants. It owned and operated 2,724 Chipotle restaurants in the United States, 40 foreign Chipotle restaurants, and four non-Chipotle restaurants as of December 31, 2020.
In the second quarter ended June 30, 2021, CMG’s total revenue increased 38.7% year-over-year to $1.89 billion. The company’s operating income came in at $245.53 million, versus a $4.94 million operating loss in the prior-year period. In addition, its net profit increased significantly from its year-ago value to $187.97 million, while its cash and cash equivalents grew 9.9% from their year-ago value to $696.15 million.
A $24.51 consensus EPS estimate in the current year represents a 128.4% increase year-over-year. The $7.38 billion consensus revenue estimate for the current year represents a 23.3% increase from the same period last year. The stock has gained 60.1% over the past year and 48.6% over the past nine months.
CMG’s POWR Ratings reflect this promising outlook. The company has a B overall rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CMG is also rated an A grade for Growth, and a B for Momentum and Quality. Within the A-rated Restaurants industry, it is ranked #22 of 46 stocks.
To see additional POWR Ratings for Sentiment, Stability, and Value for CMG, click here.
Yum! Brands Inc. (YUM)
YUM operates and franchises approximately 50,000 quick-service restaurants worldwide. The company is known for its popular brands KFC, Pizza Hut, Taco Bell, and The Habit Burger Grill. YUM is based in Louisville, Ky.
In May, YUM and Dragontail Systems Limited, an innovative provider of technological solutions for the food sector, agreed on YUM’s acquisition of Dragontail through a stock deal. Through this acquisition, YUM intends to use Dragontail’s artificial intelligence kitchen order management and delivery technologies globally to further drive its business growth.
YUM’s revenue increased 33.7% year-over-year to $1.60 billion in the second quarter, ended June 30, 2021. Its operating profit grew 89% from its year-ago value to $567 million. The company’s net income increased 89.8% year-over-year to $391 million. In addition, its EPS increased 92.5% year-over-year to $92.5 over this period.
The company’s EPS is expected to grow 16.6% year-over-year to $4.22 in the current year. Analysts expect YUM’s revenue to increase 12.7% year-over-year to $6.37 billion in the current year. The stock has gained 37.4% over the past year and 20% year-to-date.
YUM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. YUM also has an A grade for Quality, and a B for Sentiment and Momentum. The stock is ranked #14 of 46 stocks in the Restaurants industry.
Beyond the POWR Ratings grades we have just highlighted, one can see YUM’s ratings for Growth, Value, and Stability here.
Fiesta Restaurant Group Inc. (FRGI)
FRGI owns and operates fast-casual restaurants under two brands—Pollo Tropical and Taco Cabana. The Addison, Tex. company specializes in quick-service restaurants with distinct and unique cuisines and freshly prepared tropical-inspired items that appeal to many customers. It operated more than 300 restaurants as of January 3, 2021.
Last month, the company’s Pollo Tropical brand launched its first-ever proprietary cocktail—Rum Mojito. Offered at $2, this new extension to FRGI’s menu should boost its sales across South Florida and strengthen its brand value.
During the second quarter, ended April 4, 2021, FRGI reported $1.27 million in operating income, versus a $9.36 million operating loss in the prior-year quarter. Its cash and cash equivalents grew 18% from their year-ago value to $59.02 million. Its adjusted EBITDA increased 63.3% year-over-year to $12.9 million. Furthermore, the company’s Pollo Tropical segment revenue increased 2.4% year-over-year to $88.22 million over this period.
The company’s EPS is expected to grow 400% year-over-year to $0.21 in the current year. Analysts expect FRGI’s revenue to increase 8.8% from its year-ago value to $603.53 million in its fiscal year 2021. FRGI’s stock has gained 106.9% over the past year. Also, the stock has surged 53.2% over the past nine months.
FRGI’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system. FRGI also has a B grade for Growth, Value, and Momentum. Within the Restaurants , it is ranked #2 of 46 stocks.
Click here to see additional POWR Ratings for Stability, Quality, and Sentiment for FRGI.
Del Taco Restaurant Inc. (TACO)
TACO is the second largest Mexican quick-service restaurant in the United States. Its restaurants are known for their Mexican-inspired and classic American dishes. The company operated 600 restaurants across 16 states as of June 9, 2021. TACO is based in Lake Forest, Calif.
This month, TACO announced the launch of a new restaurant at 1517 Blue Oaks Blvd in Roseville. This is the company’s second restaurant in Roseville and tenth overall in the Sacramento area. Its opening should enable the company to expand its presence in Northern California and boost revenue growth.
During the second quarter ended June 15, 2021, TACO’s total revenue increased 19.5% year-over-year to $124.97 million. Its operating income increased 148.5% year-over-year to $9.21 million over this period. Its net income came in at $6 million for this period, compared to a $576 million net loss in the first quarter of 2020. The company’s EPS totaled $0.16, versus a $0.02 loss per share of in the prior-year period.
The company’s EPS is expected to grow 25% year-over-year to $0.45 in the current year. In addition, analysts expect TACO’s revenue to increase 6.4% year-over-year to $523.56 million in its fiscal year 2021. TACO’s stock has gained 19% over the past year and 16.2% over the past nine months.
It is no surprise that TACO has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Value, and a B for Momentum and Quality. In the Restaurants industry, it is ranked #16 of 46 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the TACO rating for Stability, Growth, and Sentiment here.
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CMG shares were trading at $1,851.36 per share on Friday afternoon, up $5.21 (+0.28%). Year-to-date, CMG has gained 33.51%, versus a 18.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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