The economy is reopening, yet there is potential for more shutdowns in select states. President Trump has repeatedly stated he will not issue a nationwide shutdown nor encourage states to halt economic activity. As more people venture out, we can expect fast-food restaurants to benefit from increased traffic.
While many people may be hesitant to spend significant time inside fast-food restaurants, plenty will get carryout or use the drive-thru. Companies like Wendy’s (WEN), Shake Shack (SHAK) and Jack In The Box (JACK) should benefit significantly.
There are considerable differences between the upper echelon of fast-food restaurants and the rest of the businesses in the industry. Some fast-food restaurants serve low-quality food as quickly as possible to keep the line moving. While other fast-food companies invest in exceptional tasting items and expansive menus. WEN falls into the latter category.
WEN is the third-largest fast service restaurant in the world. WEN has nearly 7,000 restaurants across the globe, some of which are partially owned by franchisees. The company scores well in the POWR Ratings with an A Trade Grade, an A Peer Grade, and a B Buy & Hold Grade. Furthermore, WEN is ranked 6th out of 48 stocks in the Restaurant Industry. The company generated a 45% price return last year and has an average analyst price target of $22.24.
WEN can maintain price momentum as long as beef supplies return and stay at normal levels. Their breakfast menu has also been a massive hit, as breakfast items now contribute 8% to total sales. The stock has a chance to climb back to its 52-week high of $24.04 if states avoid significant new shutdowns.
Shake Shack (SHAK)
As people have grown tired of cooking during quarantine, summer provides a perfect opportunity to grab a burger, fries, and a milkshake. These are SHAK’s specialties. The restaurant also sells hot dogs, frozen custard, beer, and wine.
The POWR Ratings have SHAK ranked 29th out of 48 businesses in the Restaurant Industry. SHAK returned 31.15% in 2019. The coronavirus had forced SHAK executives to shift their focus toward takeout and delivery options, making the company more capable of enduring a potential second wave.
SHAK should trend upward as the economy reopens.
Jack in The Box (JACK)
If you have ever been out west or in the south, you have likely found your way to a Jack in The Box. This chain provides tasteful food at an affordable price. JACK has over its 2,000 restaurants.
JACK ranks 13th of 48 stocks in the Restaurants Industry based on the POWR Ratings. The stock has a Peer Grade of A and good grades across the remainder of the POWR components. JACK’s stock price has lately been in the red but returned 2.5% last year.
Analysts have set an average price target of $73.43 for JACK. The current price has hovered around $70, so there is still room for upward movement. The company has a forward P/E of 20.89 and an anticipated earnings growth rate of 23%.
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SHAK shares were trading at $52.20 per share on Thursday afternoon, up $0.13 (+0.25%). Year-to-date, SHAK has declined -12.37%, versus a -4.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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