These restaurant stocks could still thrive despite spending pressure

By Dejah Miles

While restaurants continue to struggle in a tough market, certain stocks could beat the odds and rise

Consumers have become more cost-conscious when dining out, but UBS Evidence Lab predicts that some restaurant stocks can still thrive in the market.

Restaurant patrons have been more cautious when dining, buying fewer items, laying back on alcohol and prioritizing value-menu items rather than premium. UBS has noticed that consumers are prioritizing grocery shopping over spending money on quick-service restaurants because people have less money to spend on food.

With consumers being less likely to splurge eating out, there's looming pressure for quick-service restaurants to still perform well. Brands are likely to implement more practices like promotional offers to stimulate growth and draw in more guests with lower incomes.

Same-store sales and traffic are down in the industry as consumers face high prices and diminished savings, according to UBS.

Still, Domino's Pizza Inc. (DPZ), Chipotle Mexican Grill Inc. (CMG) and Texas Roadhouse Inc. (TXRH) are a few of the restaurant stocks that UBS predicts will perform well in the next year.

Domino's has been one of the few restaurants to enhance same-store sales, post unit growth and see traffic gains.

Chipotle's stock remains appealing to investors as well, according to UBS. The restaurant continues to maintain a high quality of growth and brings in a lot of consumers.

Texas Roadhouse is predicted to maintain margin growth and show "leading" same-store sales and traffic momentum. The restaurant could beat expectations on margins in the second half of the year and benefit from an eventual normalization in beef prices, according to UBS.

While the analysts are "modestly more cautious" on restaurants in general, they say "an improvement in relative value perceptions" could help more start seeing positive momentum.

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06-07-24 0544ET

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