Now is a suitable time for investors to start adding restaurant stocks to their portfolio, says Nick Setyan. He’s a Senior Equity Analyst at Wedbush Securities.
Restaurant stocks are near a bottom
Setyan likes the restaurant stocks down roughly 25% year-to-date because the potential reward, he says, is a lot bigger than the associated risk. Speaking with CNBC’s Kelly Evans on “The Exchange”, he noted:
The sentiment is as negative as I’ve ever seen. Even during the financial crisis, valuations on these companies dropped to the low teens. We are under 14 times right now. So, if not at trough levels, I think we’re near.
These stocks are also attractive for the Wedbush analyst because he’s convinced the food price inflation peaked in June. CPI data for last month is expected on Wednesday.
Stocks he likes in the restaurant space
Names that pop out to him in the restaurant space include Wendy’s and Wingstop. He’s also bullish on Dine Brands Global Inc (NYSE: DIN) that’s trading at a PE multiple of 11.85. Explaining why, Setyan said:
They own IHOP and Applebee’s. They’re completely franchise concepts so you don’t have to worry about margin headwinds. They generated over 10% free cash flow so they can buy a ton of stock. Balance sheet is as good as I remember.
In May, the $1.11 billion company reported better-than-expected profit for its fiscal first quarter. Wall Street currently rates the stock at “overweight” and sees about a 40% upside from here on average.
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