Restaurant companies had a mediocre year, at best, on Wall Street in 2014. That should make it easy on analysts responsible for giving their stock picks in advance of the annual ICR Xchange investors conference in Orlando next week.
It’s easier to pick stocks when their values are lower, than when their values are higher. In 2013, restaurant stocks rose 45 percent on average. Last year, stocks rose 3.5 percent and badly underperformed the S&P 500 for the first time in years. So analysts could pick from a pretty long list of companies whose stock prices are slumping.
Indeed, there was little consensus among analysts as to which stock will perform best in the coming year. ICR asked for stock picks from 10 analysts, and they picked nine companies. They picked quick-service concepts and casual dining chains, multi-brand companies and single-unit operations.
Two analysts polled by ICR picked Panera Bread. The St. Louis-based fast-casual chain finished the year down just over 1 percent amid relatively weak sales.
But Barclays Analyst Jeffrey Bernstein expects that the company’s “Panera 2.0” technology initiative should drive earnings. Wells Fargo Analyst Jeff Farmer says the company’s efforts to improve throughput, improve marketing, add tiered menu pricing and rapid pickup should help drive sales this year.
Otherwise, analysts disagreed as to which one will do best. But they generally shied away from picking newly public companies, most of which had excellent years in 2014 as investors threw money at anything they thought might grow.
Jefferies Analyst Andy Barish was the exception. He picked Papa Murphy’s, which went public last May. While most IPOs this year received strong valuations out of the gate, Papa Murphy’s spent much of the year trading below its $11 offering price. While the take-and-bake pizza chain finished the year up more than 5 percent off that price, it remains undervalued, at least according to Barish.
The company “trades at a discount to its highly franchised peers,” Barish said, and he said that marketing, point of sale, online ordering and operations improvements should all drive sales.
Another recent IPO that underperformed last year was Noodles & Company. The Denver-based noodle chain finished the year with its stock having fallen more than 26 percent. But Robert Baird & Co. Analyst David Tarantino believes the chain is “well positioned to capture share within the rapidly growing fast-casual segment” thanks to its “differentiated and compelling concept.”
At least one analyst was willing to pick a stock coming off a good year. Papa John’s International stock rose nearly 23 percent in 2014. But Peter Saleh, analyst at Telsey Advisory group, believes moderating cheese costs and market share gains should propel that stock in 2015.
And Nicole Miller Regan, analyst at Piper Jaffray, put her chips on Restaurant Brands International — the company formed after Burger King Worldwide bought Tim Hortons Inc. Miller Regan believes that the new company should generate cash flow and reinvest in the business and perhaps return that cash to shareholders over time.
But for the most part, analysts chose companies coming off weak years. Will Slabaugh, analyst at Stephens Inc., picked Chuy’s Holdings Inc. — whose stock fell more than 45 percent last year. William Blair Analyst Sharon Zackfia picked Dunkin’ Brands Group, Inc., which fell 11.5 percent last year, and BMO Capital Markets Analyst Andrew Strelzik picked Bloomin’ Brands, Inc., which rose a modest 3 percent. Nick Setyan, analyst at Wedbush Securities, picked Krispy Kreme Doughnuts, Inc., which had just a 2.3-percent increase in 2014.