Despite macroeconomic challenges, the long-term forecast for the restaurant industry remains positive. So, investors looking for quality restaurant stocks can consider buying Starbucks Corporation (SBUX). However, I think it could be wise to wait for a better entry point in Krispy Kreme, Inc. (DNUT), considering its weak fundamentals.
According to the National Restaurant Association’s 2023 State of the Restaurant Industry study, the food service industry is forecast to reach $997 billion in revenues in 2023, with a projected rise of 500,000 jobs, despite rising food costs and increased competition.
Moreover, according to a Nation’s Restaurant News survey, 9 out of 10 restaurant owners want to increase their technology investments in the coming year to improve employee productivity, operational efficiency, and customer experience. The global food service industry is expected to grow at a 10.8% CAGR until 2030.
However, the restaurant industry is currently facing a challenging time due to labour shortages, supply chain issues, and high food costs, with the majority of operators viewing these issues as critical barriers for their operations.
Let us look deeper into the fundamentals of the featured stocks.
Stock to Buy:
Starbucks Corporation (SBUX)
SBUX and its subsidiaries, operate as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America; International; and Channel Development. Its market cap is $131.55 billion.
SBUX’s trailing-12-month ROTA of 12.43% is 242.6% higher than the industry average of 3.63%. Its trailing-12-month ROTC of 18.64% is 206.7% higher than the industry average of 6.08%.
SBUX’s total net revenue increased 14.2% year-over-year to $8.72 billion for the fiscal second quarter that ended April 2, 2023. Its non-GAAP operating income increased 25% from the previous-year quarter to $1.25 billion.
Also, its net earnings attributable to SBUX grew 34.7% year-over-year to $908.30 million and its non-GAAP EPS increased 25.4% from the previous-year quarter to $0.74.
The consensus revenue estimate of $36.11 billion for the year ending September 2023 represents a 12% increase year-over-year. Its EPS is expected to grow 15.8% to $3.43 for the same period. It surpassed EPS estimates in three of four trailing quarters.
SBUX’s shares have gained 43.6% over the past year to close the last trading session at $101.87.
SBUX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SBUX also has a B for Quality and Momentum. It is ranked #16 out of 44 stocks in the A-rated Restaurants industry. Click here for the additional POWR Ratings for Value, Stability, Growth, and Sentiment for SBUX.
Stock to Hold:
Krispy Kreme, Inc. (DNUT)
DNUT together with its subsidiaries, produces doughnuts in the United States, the United Kingdom, Australia, New Zealand, Mexico, and internationally. The company operates through three segments: U.S. and Canada; International; and Market Development.
DNUT’s forward Price/Book of 2.01% is 20% lower than the industry average of 2.52%, while its trailing-12-month EV/EBIT of 41.65% is 212% higher than the industry average of 13.35%.
DNUT’s trailing-12-month CAPEX/Sales of 6.90% is 115.7% higher than the industry average of 3.20%, while its trailing-12-month ROTC of 0.52% is 91.5% lower than the industry average of 6.08%.
DNUT’s net revenue for the first quarter ended April 2, 2023, increased 12.5% year-over-year to $418.95 million. Its operating income decreased 13.5% year-over-year to $14.95 million.
However, its total current assets came in at $155.63 million for the period that ended April 2, 2023, compared to $178.27 million for the period that ended January 1, 2023. Its total current liabilities came in at $446.04 million, compared to $516.47 million in the same period.
Analysts expect DNUT’s revenue to increase 10.8% year-over-year to $1.69 billion for the year ending December 2023. Its EPS is expected to grow 16% year-over-year to $0.34 for the same period. The stock has lost 3.5% over the past month to close its last trading session at $14.41.
DNUT’s has an overall C rating, equating to a Neutral in our POWR Ratings system.
It also has a C grade for Value and Stability. It is ranked #40 in the same industry. Beyond what is stated above, we’ve also rated DNUT for Momentum, Sentiment, Growth, and Quality. Get all DNUT ratings here.
What To Do Next?
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SBUX shares were trading at $101.87 per share on Monday afternoon, up $0.49 (+0.48%). Year-to-date, SBUX has gained 3.72%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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