Please ensure Javascript is enabled for purposes of website accessibility

3 Top Restaurant Stocks to Watch In June

By Anders Bylund – Jun 6, 2020 at 7:13AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of these restaurant operators is suffering, another just wants to get back to last year's solid growth rates, and the third is applying lessons learned in the coronavirus lockdown to negotiate better deals with its landlords.

The restaurant sector has not been kind to investors in 2020. The COVID-19 pandemic forced eateries to close their doors to sit-down diners, focusing exclusively on takeout and delivery options, instead. The S&P 500 Restaurants index fell 35% from the new year to March 18 before staging an impressive recovery.

Some restaurant stocks have suffered more than others this year. Investors should keep a close eye on Chipotle Mexican Grill (CMG -0.84%), Bloomin' Brands (BLMN -1.06%), and Restaurant Brands International (QSR -2.81%) this month, for very different reasons.

Bloomin' Brands

The parent company of Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse was not in great shape before the coronavirus crisis. The company put itself up for sale in February under pressure from activist investors to reshape the portfolio of restaurant concepts. Bonefish Grill stood out like a sore thumb, posting lower sales, while the other brands reported rising revenues.

The search for buyers has been put on hold, at least until the end of the COVID-19 health crisis. The company might restart that process if the return to regular sit-down service goes smoothly. Bonefish Grill could be offered for sale as a separate brand in order to unlock some value from that struggling operation. Bonefish continued to post worse results than its Bloomin' brethren during the coronavirus lockdown period, after all.

Bloomin's stock is trading 40% lower in 2020. I wouldn't be surprised to see activist investor JANA Partners demanding a quicker path toward positive returns, even if that involves selling off underperforming brands.

Photo of a restaurant door with a sign that says Come in, we're open.

Image source: Getty Images.

Restaurant Brands

The owner of fast-food brands Burger King, Tim Hortons, and Popeye's entered the COVID-19 era from a different angle. Popeyes found a goldmine in its revamped spicy chicken sandwich last year, helping that brand deliver 42% year-over-year sales growth in the holiday quarter.

Popeye's spicy growth slowed down to 32% in the first quarter, while Burger King and Tim Hortons suffered single-digit revenue slowdowns. The company was looking into a renewed growth effort for Tim Hortons and Burger King, based on remodeled stores and upgraded ordering systems. That project is still underway, albeit at a different pace than originally planned. Some upgrades are on hold while the installation of digital-ordering systems was accelerated by the health crisis.

Like Bloomin', Restaurant Brands would love to get back to full-service operations across its three-store networks. The sense of urgency is somewhat milder here, thanks to the drive-through windows found in most of this fast-food vendor's locations, but Burger King and Tim Hortons could use a quick rebound, and Popeyes isn't making the most of its unique chicken sandwich, which was hit under coronavirus lockdown orders.

So the reopening of restaurants and other businesses is important to this company, too, but it's more of a growth-chasing thing than a desperate gasp for air. Restaurant Brand's stock is only trading 9% lower this year, giving management a little more room to maneuver.

A bean burrito served on a white napkin.

Image source: Getty Images.

Chipotle Mexican Grill

Some restaurants are actually thriving right now, and Chipotle is a good example of that. This stock is trading at all-time highs today, and Chipotle's top-line growth clocked in at 8% in the first quarter.

The company introduced drive-through options in 2019, just in time to meet the takeout demands of the COVID-19 era. In fact, the success of these drive-through operations is helping Chipotle negotiate remodeling options with their landlords. Adding a so-called Chipotlane isn't always a simple change, sometimes requiring dramatic changes to the landscape and other buildings around the Chipotle location.

As CFO John Hartung said in Chipotle's first-quarter earnings call

While they might have resisted that a bit in the past, we're not seeing much resistance of that anymore. The fact that we're looking to go into a site, we're continuing to grow -- that's what we're most excited about. But we do think we'll be able to get more sites, higher quality sites, more Chipotlanes, and I would expect that the rents should be at least incrementally more attractive."

Keep an eye on Chipotle's store openings and Chipotlane remodeling operations this summer. These efficient drive-through windows just might hold the key to the company's long-term growth prospects.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,506.99 (-0.84%) $-12.79
Bloomin Brands Stock Quote
Bloomin Brands
$19.68 (-1.06%) $0.21
Restaurant Brands International Stock Quote
Restaurant Brands International
$53.58 (-2.81%) $-1.55

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.