Hot May Numbers Make These Five Top Restaurant Stocks Solid Summer Buys

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Many of the consumer discretionary stocks that make up that sector have suffered this year. As of the end of last week, it is the only sector that was down so far in 2014, and it may continue to struggle the rest of the summer. One area that has excelled is the restaurant stocks, especially the top names. In a new research report, the analysts at Baird point to the outstanding numbers that many of the top stocks in the sector posted last month.

The Baird team thinks the combination of positive comparison numbers and a manageable cost backdrop, with food price inflation cooling, can support healthy earnings growth for many of the top companies during the second half of the year.

Chipotle Mexican Grill Inc. (NYSE: CMG) has become the momentum trader’s dream stock, and it is added to the list. The company has more than 1,500 restaurants worldwide and is planning on opening up to 195 new restaurants this year. Like many companies, Chipotle has also spoken favorably of the idea of increasing its stock buyback program, which speaks to the company’s confidence in the growth of its business. The Baird price target for the stock is a gigantic $650, while the Thomson/First Call consensus number is at $573.96. Chipotle closed Thursday at $581.85 a share.

Chuy’s Holdings Inc. (NASDAQ: CHUY) is a top name known for its wild theme restaurants. The company owns and operates 53 full-service restaurants across 14 states, serving a distinct menu of authentic, made from scratch, Tex-Mex-inspired dishes. With wild interiors and popular menus, the brand continues to grow and gain followers. The Baird price target for this fast growing company is $46, and the consensus target is $44. The stock closed Thursday at $33.11.

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Dunkin’ Brands Group Inc. (NASDAQ: DNKN) continues to roll-out its huge store expansion and will return to California this year for the first time since 2002. There are currently roughly 7,750 Dunkin’ Donuts restaurants in the United States and almost 3,160 elsewhere. The company has added to its menus and continues to post solid revenues each quarter. Investors do receive a 2% dividend. Baird has a $54 price target, and the consensus number stands at $52.22. Shares closed Thursday at $44.33.

Panera Bread Co. (NASDAQ: PNRA) has been another momentum player’s delight over the past couple of years, and in the process mauled most of the short sellers. We recently covered how they and other top restaurants are focusing on providing customers food made with only the best ingredients, a winning strategy for keeping existing customers and adding new ones. The Baird price target is $200, and the consensus target is $171.71. Panera closed Thursday at $150.59.

Starbucks Corp. (NASDAQ: SBUX) dominates the retail coffee business in the United States, and the international growth is helping to boost earnings. In fact, the brand has become so ubiquitous that consumers often just say “Let’s grab a Starbucks.” Despite a pricing point that is higher than others, the company continues to add new items at its stores, which have been received well. Investors are paid a 1.4% dividend. Baird has a $90 target price for the stock. The consensus target is $87.83. Starbucks closed Thursday at $73.96.

Clearly the rich are getting richer when it comes to the top restaurant stocks on Wall Street. While some are very pricey and could get pummeled in a swift market sell-off, they offer investors looking for solid growth good names to own in a medium-risk equity portfolio.

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