COVID-19 vaccination rates in the United States have risen significantly over the past few weeks as even hesitant people have now begun rushing to receive their vaccines amid the rapid spread of the COVID-19 Delta variant. Daily average doses administered rose 31% in the last week of July to 390,000 per day. Furthermore, the CDC issued recommendations to approve vaccine booster shots for vulnerable people on August 13.
With approximately 70% of the U.S. adult population at least partly inoculated to date, the restaurant industry is expected to remain operational despite the surging COVID-19 cases. Furthermore, strong consumer discretionary spending and pent-up demand should allow restaurants to maintain their current operational levels.
Given this backdrop, Wall Street analysts expect the prices of popular restaurant stocks The ONE Group Hospitality, Inc. (STKS), Del Taco Restaurants, Inc. (TACO), and Carrols Restaurant Group, Inc. (TAST) to rally by more than 50%.
The ONE Group Hospitality, Inc. (STKS)
STKS is a Denver, Colorado-based hospitality company that operates upscale lounges and restaurants under the STK and Kona Grill brands. It operates in North America, Europe, and the Middle East through three segments—STK; Kona Grill; and ONE Hospitality.
STKS’ revenues increased 324.6% year-over-year to a record $70.80 million in its fiscal second quarter, ended June 30. This can be attributed to a 38% rise in comparable sales. Its operating income came in at $7.76 million, representing a substantial improvement from its negative year-ago value. Its net income increased 534.1% from the same period last year to $14.10 million, while its EPS rose 510% from the prior-year quarter to $0.41.
On July 21st, the company opened an STK Steakhouse in Bellevue, Washington, marking its fourth opening so far this year. Through this restaurant opening, STKS successfully expanded its market reach to Washington.
A $70.77 million consensus revenue estimate for its fiscal third quarter (ending September 2021) indicates a 78.9% improvement year-over-year. In addition, analysts expect its EPS to improve 566.7% from the same period last year to $0.48 in the current quarter. The company has an impressive earnings surprise history; it beat Street EPS estimates in three out of trailing four quarters. Shares of STKS have gained 421.6% over the past year and 193.2% year-to-date.
The 12-month median price target of $17 indicates a 56.7% potential upside from yesterday’s $10.85 closing price.
Del Taco Restaurants, Inc. (TACO)
TACO operates and franchises quick-service Mexican American restaurants across the country. The Lake Forest, Calif.-based company managed some 600 restaurants spread across 16 states as of June 9, 2021. TACO is the second largest Mexican quick-service restaurant in the United States.
In its fiscal second quarter, ended June 15, TACO’s revenues rose 19.5% year-over-year to $125 million. This can be attributed to an 18.6% rise in company-operated restaurant sales. Its adjusted EBITDA grew 39.7% from the prior-year quarter to $16.90 million, while its adjusted net income improved significantly from its negative year-ago value to $6.10 million. Its adjusted EPS came in at $0.16, reflecting a substantial rise from the break-even value reported in the same period last year.
TACO has been gradually expanding its market presence by opening new restaurants in various states across the U.S. Over the past month, the company has opened restaurants in Atlanta, Roseville, and Detroit. Furthermore, it partnered with Consolidated Taco Holdings to open two new franchises in Florida. These new restaurant launches should allow the company to strengthen its position in the Mexican quick-service restaurant space.
The Street expects TACO’s revenues and EPS to rise 7.4% and 33.3%, respectively, year-over-year to $528.16 million and $0.48 in the current year. In addition, the company topped the consensus EPS estimates in each of the trailing four quarters. TACO has gained 17.8% since hitting its 52-week low of $7.23 on October 21.
Both Wall Street analysts that rated TACO have rated it Buy. The 12-month median price target of $14.50 indicates a 70.2% potential upside. The price targets range from a low of $14.00 to a high of $15.00.
Carrols Restaurant Group, Inc. (TAST)
TAST is one of the largest Burger King franchisee operators based in the United States. It operates 1029 Burger King restaurants in 23 states and 65 Popeyes restaurants across seven states. TAST is based in Syracuse, N.Y.
TAST’s total restaurant sales increased 15.2% year-over-year to $424.50 million in its fiscal second quarter, ended July 4. This is attributable to a 12.6% rise in comparable sales for its Burger King restaurants. Its adjusted leverage ratio has improved to 3.82 times compared to the 4.18 times year-ago value.
On July 8, TAST announced that it recently acquired 19 Burger King restaurants in Indiana and Michigan in two separate transactions. The acquisition is aligned with the company’s strategy of growing its overall portfolio and strengthening its presence in the Midwestern states.
Earlier in July, the company raised $300 million through a private, senior notes offering. TAST plans to use the proceeds to repay $318 million in term loans under its senior credit facility, as well as fund its general corporate expenses and possible share buyback or dividend payouts.
TAST’s revenue is expected to increase 4.3% year-over-year to $1.72 billion next year. Its EPS is expected to improve 76.5% from the same period last year in 2022. The stock has gained slightly from its intraday low of $4.01 to close yesterday’s trading session at $4.03.
All three Wall Street analysts that rated the stock have rated it Buy. Analysts expect the stock to hit $6.33 within the next 12 months, indicating a 57.1% potential upside. The price targets range from a low of $6.00 to a high of $7.00.
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STKS shares were unchanged in premarket trading Tuesday. Year-to-date, STKS has gained 193.24%, versus a 19.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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