Just over one quarter into 2019, the restaurant sector is doing fairly well, but not as well as the S&P 500 (+16%), Russell 2000 (+17.8%) or Russell Microcap (+16.3%). A basket of 38 restaurant stocks I track, large and small, are up about 14% year to date.
The "Big Five" (a self-coined term) - consisting of McDonald's Corp. (MCD) (up 8% year to date), Yum Brands Inc. (YUM) (+9%), Darden Restaurants Inc. (DRI) (+20%), Chipotle Mexican Grill Inc. (CMG) (+64%) and Domino's Pizza Inc. (DPZ) (+3%) - are up an average of 21%, with CMG on fire.
CMG has exceeded earnings estimates the past two quarters. The company trounced fourth quarter estimates, earning $1.72 versus the $1.37 consensus. The stock was up 11% the day after earnings were announced, and has been off to the races ever since. It also hit a milestone in February, opening its 2500th location. CMG currently trades at 45x next year's earnings; too rich for my blood, although I never tire of the food.
Dine Brands Global (DIN) (+40%) is enjoying a solid 2019, although it has fallen off of February its high, when it briefly crossed the $100 barrier intraday on February 22nd, and February 25th. DIN also beat first quarter consensus estimates ($1.70 versus $1.57 consensus). However, the name still trades at just 11x next year's consensus estimates, in sharp contrast with CMG, in a classic battle of growth (CMG) versus value (CMG). I continue to be impressed with what DIN has done with the Applebee's brand; solid menu, consistently good food, and great specials (all in the eye of the beholder, of course).
One of my favorites, Cracker Barrel (CBRL) (-1%), is not participating in the market upswing. Second quarter earnings were slightly better than consensus ($2.52 versus $2.50), but there has not been much excitement surrounding the name, which trades at about 16x next year's consensus estimates. Biglari Holdings ( (BH) , (BH.A) ), which at one point held nearly 20% of CBRL, has been selling CBRL shares over the past several months, taking its stake down to 14.7% as of last month. BH has made a lot of money on CBRL over the years, both in capital appreciation and dividends. Hopefully BH shareholders will learn more about the company's plan for its remaining CBRL stake at the Biglari annual meeting (April 25th), but as a long-time shareholder, I'm not counting on it.
Last but not least, Bricktown Brewery (BEER) filed for a $17 million IPO last week; the Oklahoma company has 14 locations in Oklahoma, Texas, Kansas, Arkansas, and Missouri. After a run of restaurant IPOs between 2012 and 2015, as well as industry consolidation through acquisitions, this is the first restaurant IPO I've seen in a while, so I will be keeping an eye on it, and especially whether others will follow suit into the still crowded publicly traded restaurant landscape.
