3 Restaurant Stocks to Buy That Could Beat Earnings and Raise Estimates

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Quietly, one industry has done it quarter after quarter. Numerous stocks therein have not only beaten earnings estimates but raised forward guidance. Savvy investors probably guess health care, or perhaps security software stocks, but the industry that actually has been doing the beat-and-raise dance is restaurants.

A new research report from Stifel say that for the third consecutive quarter the firm anticipates yet another beat-and-raise delivery from the top stocks in the industry. Stifel anticipates anywhere from 0.5% to 1.7% across-the-board same-store sales beats coming in for the second quarter. In fact, the analysts’ final second-quarter survey results suggest that industrywide comparisons were up 2.5%, which the Stifel team estimates is 0.5% higher than current Wall Street expectations.

With what they term the “rising-tide” dining out recovery in full swing, and one that has been since third quarter of last year, they see substantial upside to restaurant margins going forward. The company is very bullish on three stocks now, and all are rated Buy.

Cheesecake Factory

This top restaurant stock has had a stellar year for shareholders and could be ready to tack on more gains. Cheesecake Factory Inc. (NASDAQ: CAKE) operates 192 full-service casual dining restaurants throughout the United States and Puerto Rico, including 179 restaurants under the Cheesecake Factory name, 12 under the Grand Lux Cafe and one restaurant under the RockSugar Pan Asian Kitchen mark. Internationally, nine Cheesecake Factory restaurants operate under licensing agreements. The company’s bakery division operates two bakery production facilities in Calabasas Hills, Calif., and Rocky Mount, N.C., that produce quality cheesecakes and other baked products.

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The Stifel analysts feel that not only is the company poised to deliver another quarter of solid numbers, but they believe from a trend standpoint it is well positioned to benefit from a bullish view on what they term “destination dining” concepts. These are considered premium quality, high-energy restaurants that they believe will continue to extract market share from the mass-causal chains. This makes good sense, especially as the economy improves.

Cheesecake Factory shareholders are paid a 1.21% dividend. The Stifel price target for the stock is $65. The Thomson/First Call consensus target is much lower at $54. Shares closed above the consensus figure Tuesday at $54.66.