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Why These Food Stocks Are on the Rise Wednesday

By Daniel Miller – Updated Apr 22, 2020 at 4:28PM

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More economic stimulus and improving sentiment is a welcome relief to many food stocks and broader markets.

What happened

Shares of Brinker International (EAT 2.88%), Wendy's (WEN 0.72%), McDonald's (MCD 0.71%), and Yum! Brands (YUM 1.43%), well-known fast food and restaurant stocks, are all moving higher today after a handful of earnings reports beat estimates, and the Senate passed a deal for more economic stimulus, helping to push broader markets higher.

At the end of trading today, Brinker was up 10%, Wendy's was up 4.9%, McDonald's was up 5%, and Yum! Brands was up 6.9%.

So what

The U.S. Senate passed an interim deal to add $484 billion to its small business aid program, COVID-19 testing, and hospital aid packages, and the House could vote as soon as Thursday. The general feeling is that, if passed and signed, the bill would help bolster some of the measures taken in late March, but likely wouldn't be the final stimulus needed.

EAT Chart

EAT data by YCharts

Any positive economic sentiment will help food stocks, especially stocks like Brinker International -- which owns brands such as Chili's Grill & Bar and Maggiano's Little Italy -- that have less ability to offset the decline in food sales with drive-thru and delivery capabilities.

To be fair, Brinker took steps to bolster its off-premise business, ordering, and mobile prowess, which enabled it to more than double its year-over-year off-premise sales. Delivery is also approaching 20% of total sales and management amended its revolving credit facility to improve its potential financial liquidity.

Fast-food stocks such as Wendy's and McDonald's have proven more resilient to the stay-at-home conditions and the loss of dine-in business. In fact, Wendy's noted it had strong drive-thru business and its digital sales business grew to 4.3% of sales, from 2.5% in 2019, thanks to a boost in delivery. But there is still financial pain to be felt, with its same-store sales dropping 20% during the week ended March 22. 

Cheeseburger and fries

Image source: Getty Images.

Now what

Many fast-food and dine-in restaurants are hoping to slowly reopen dining areas in parts of the U.S. where restrictions are being eased. We're not through the financial pain that will be felt from the COVID-19 coronavirus, but companies have done all they can by boosting liquidity and adapting on the fly to emphasize delivery and other alternatives, and now the companies with stronger balance sheets will emerge in a position to grow as the economy bounces back. Markets will eventually rebound from COVID-19, but not all companies will: Be sure to understand the liquidity and long-term potential of businesses before making hasty investing decisions, even if they appear to be trading at attractive prices.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Yum! Brands Stock Quote
Yum! Brands
YUM
$113.00 (1.43%) $1.59
Brinker International Stock Quote
Brinker International
EAT
$27.53 (2.88%) $0.77
The Wendy's Company Stock Quote
The Wendy's Company
WEN
$19.61 (0.72%) $0.14
McDonald's Stock Quote
McDonald's
MCD
$240.19 (0.71%) $1.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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