With the restaurant industry struggling amid a labor crunch, legislators could boost wages to attract workers to meet demand. The rising wages have led restaurant operators to turn toward automated technology, such as artificial intelligence software and robots, to cut their labor costs.
According to a Lightspeed Commerce Inc. (LSPD) survey of 1,100 restaurateurs and 7,000 consumers globally, 57% of respondents agreed that new technology adoption over the past two years has been critical for their business.
As automation has been shown to help restaurants reduce costs and deliver high-quality food to their customers, restaurants should benefit from advanced technologies to increase service speed and staff proficiency.
The global foodservice market is expected to reach $4.68 trillion by 2028, growing at a CAGR of more than 10.5%. With new trends and technology transforming restaurant operations, the industry is positioned well for long-term growth.
Amid this backdrop, investors could look to buy fundamentally strong restaurant stocks McDonald's Corporation (MCD), Nathan's Famous, Inc. (NATH), and Rave Restaurant Group, Inc. (RAVE).
McDonald's Corporation (MCD)
Globally renowned fast-food franchise MCD operates restaurants known for their hamburgers and cheeseburgers, chicken sandwiches and nuggets, wraps, and fries, among other items.
In terms of the trailing-12-month gross profit margin, MCD’s 56.97% is 61.3% higher than the 35.33% industry average. Likewise, its 12.25% trailing-12-month Return on Total Assets is 182.4% higher than the industry average of 4.34%.
On December 15, 2022, MCD and all five members of the restaurant chain's North American Logistics Council (NALC) signed agreements with Enel North America to purchase renewable energy and the associated renewable energy certificates (RECs) from Enel Green Power's Blue Jay solar project. This should help MCD achieve its sustainability goals.
SVP and Chief Supply Chain Officer, North America, at MCD, Bob Stewart, said, "This deal is a unique example of how McDonald's and its logistics partners are combining efforts to leverage their reach and scale to tackle supply chain emissions together. We are excited about our collective potential to help address climate change and drive continuous improvement."
MCD's operating income for the fiscal fourth quarter that ended December 31, 2022, increased 7.7% year-over-year to $2.58 billion. The company’s non-GAAP net income increased 13.3% year-over-year to $1.90 billion. Additionally, non-GAAP EPS came in at $2.59, representing a 16.1% increase from the prior-year quarter.
Analysts expect MCD’s EPS for the quarter ending March 31, 2023, to increase 1.2% year-over-year to $2.31. Its revenue for the quarter ending June 30, 2023, is expected to increase 6.6% year-over-year to $6.09 billion.
It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 11.7% over the past nine months to close the last trading session at $269.99.
MCD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Restaurants industry, it is ranked #7 out of 45 stocks. It has an A grade for Quality and a B for Stability and Sentiment.
In total, we rate MCD on eight different levels. Beyond what we stated above, we have also given MCD grades for Growth, Value, and Momentum. Get all MCD ratings here.
Nathan's Famous, Inc. (NATH)
NATH operates in the foodservice industry. The company owns and franchises restaurants under the NATH brand name, and sells products bearing the NATH trademarks through various channels of distribution. It also has license agreements for the manufacture, distribution, marketing, and sale of NATH-branded products.
In terms of the trailing-12-month net income margin, NATH’s 14.45% is 200.2% higher than the 4.81% industry average. Likewise, its 22.63% trailing-12-month Return on Total Assets is 421.7% higher than the industry average of 4.34%.
For the fiscal third quarter that ended December 25, 2022, NATH’s total revenues increased marginally year-over-year to $26.15 million. The company’s net income increased 53.2% from the year-ago period to $3.26 million.
Its adjusted EBITDA increased 16.8% year-over-year to $6.90 million. In addition, its EPS came in at $0.79, representing a 51.9% increase from the prior-year quarter.
The stock has gained 65.1% over the past nine months to close the last trading session at $79.84.
It is no surprise that NATH has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked first in the same industry. Moreover, it has an A grade for Quality and a B for Sentiment.
To see the additional ratings of NATH for Growth, Value, Momentum, and Stability, click here.
Rave Restaurant Group, Inc. (RAVE)
RAVE operates and franchises pizza buffets, delivery/carry-out, and express restaurants under the Pizza Inn trademark worldwide. It operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.
In terms of the trailing-12-month net income margin, NATH’s 14.45% is 200.2% higher than the 4.81% industry average. Likewise, its 22.63% trailing-12-month Return on Total Assets is 421.7% higher than the industry average of 4.34%.
For the fiscal second quarter that ended December 25, 2022, RAVE’s revenues increased 6.3% year-over-year to $2.87 million. The company’s adjusted EBITDA increased 8.8% year-over-year to $615K. Additionally, its EPS came in at $0.02.
The stock has gained 75.7% over the past nine months to close the last trading session at $1.59.
RAVE’s POWR Ratings reflect this positive outlook. RAVE has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #4 in the same industry. It has an A grade for Quality and a B for Value and Sentiment.
We have also given RAVE grades for Growth, Momentum, and Stability. Get all RAVE ratings here.
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MCD shares were trading at $269.25 per share on Tuesday morning, down $0.74 (-0.27%). Year-to-date, MCD has gained 2.17%, versus a 5.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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