It seems like only yesterday that investors were cheering consumers’ return to restaurants. Actually, it was last month, but a resurgence in coronavirus cases in many parts of the country has curbed diners’ appetites.
Fast-casual restaurants have shown “a quick deceleration for the week ended June 28, putting a halt to the recent months' gradual, albeit choppy, recovery for the category,” Barish writes in a Tuesday note. On the positive side, however, Barish writes that these companies are “now in much better shape” with people now realizing the upside to getting takeout from restaurants that previously weren’t associated with this kind of meal. He thinks valuations are still attractive in the sector, highlighting Bloomin’ Brands as the best way to get exposure to the longer-term recovery, given its strong off-premises growth.
Still, he warns that while he thinks these companies will continue to see the strongest near-term growth, he thinks they are “past peak year-over-year growth, which could make multiple expansion difficult.” Thus, he argues that investors should turn to the smaller players, like El Pollo Loco Holdings , Noodles & Co. , and Del Taco Restaurants , which have seen “impressive acceleration in off-premise/drive-thru, but valuations [that are] still relatively depressed.
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