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Blog
Restaurant Stocks Poised for a Comeback
July 10, 2007
Piper Jaffray’s Nicole Miller Regan recently published a report on the second-quarter performance of the dozen or so chains she covers. The 75-page document is titled “Prime Time”: 3Q07 Cook Book: School's Out: Do Your Homework!? (We’ve yet to figure out the punctuation.)
Like other analysts Regan dutifully stuffs it with commentary and useful data including models, Knapp-Track, earnings updates and statistical summaries. And like other sell-siders, she thinks investors should stick around amid plenty of bad news:
“ Despite only moderate improvement in same-store-sales trends, we believe that investors should consider opportunistically rotating back into the restaurant industry throughout the third quarter.Our research suggests a buying opportunity during the third quarter as stock prices trend lower, which could potentially transition into favorable performance in the fourth quarter when restaurant stocks have historically peaked (recognizing that the group has historically underperformed at the tail end of the first quarter).”
In other words, buy low, sell high.
Most intriguingly, Regan offers a “concept spectrum,” a collection of categories (limited service, premium convenience, casual plus, etc.) she believes includes current winners:
“In general, we expect companies with concepts in the premium-convenience and casual-plus segments of the restaurant industry to score. The restaurant industry continues to evolve in the sense that chains continue to change to satisfy consumer demands. To help define our thoughts, we have recognized category kings along the spectrum, which is generally based on the chain with the most restaurants in operation in its respective segment. Each sub-segment is defined by evaluating the price, convenience, service, atmosphere and food elements that each chain has to offer.”
Who she likes: Panera Bread (premium convenience), Red Robin (full-service casual) and California Pizza Kitchen (casual plus). Regan believes these chains must nonetheless evolve carefully, with an eye always on the consumer.
“ We believe that ultimately, a differentiated concept should strive to provide both a need and a want. And to achieve that status, we believe companies must constantly reinvent concepts, which requires an ongoing investment in the brand.”Posted by David Farkas on July 10, 2007 | Comments (0)