Just like a $1 slider, Jefferies restaurant analyst Andy Barish says restaurant stocks are too cheap to ignore...and it's time to chow down.
"Really it's the damage done [during the pandemic] unfortunately to a lot of independent restaurants in the sector during the past 18 months of the pandemic that has caused a huge amount of capacity to be reset. So coming out of the pandemic, the large restaurant chains are very well positioned to take incremental market share in the form of better same-store sales growth as well as accelerating unit growth — both of which we think will be rewarded with higher valuations and higher stock prices," Barish said on Yahoo Finance Live of his bullish call on sit-down restaurants on Friday.
The analyst upgraded shares of BJ Restaurants (BJRI), Chuy's Holdings (CHUY), Dave & Buster's (PLAY) and Red Robin Gourmet Burger (RRGB) to Buy. Barish reiterated Buy ratings on Bloomin' Brands (BLMN) and Brinker International (EAT).
Besides having a positive view on the sector, Barish says all six restaurant companies have key catalysts in place that should warrant a higher stock price.
For example, Red Robin Gourmet Burger is currently rolling out Donatos brand pizza to hundreds of its restaurants. Cheesecake Factory could bring back a dividend in 2022 after suspending it at the height of the pandemic in 2020. Dave & Buster's may benefit from the fresh eyes of new interim CEO Kevin Sheehan, who assumed the role this week amid the abrupt retirement of its CEO.
Barish's call comes as restaurant stocks have treaded water at best in recent months as the Delta variant has weighed on customer traffic. The S&P 500 Restaurants Index has underperformed the S&P 500 since mid-July, which is when traffic began to soften for restaurants.
But Barish sees restaurants powering back into year-end.
"While trends have slowed modestly in recent weeks, our analysis of survey results, weekly same-store sales and foot traffic data and company reports show signs of resiliency and less of a slowdown than investors might have expected. We see potential inflection as comparisons ease in Oct/Nov, and progress with vaccinations/boosters help ease concerns about Delta and full service dining," Barish wrote in his note to clients.