2 Restaurant Stocks Showing Some Sizzle

| About: Ruth's Hospitality (RUTH)

We are in the middle of earnings season and the quarterly reports are coming fast and furious. It is very beneficial to peruse these reports to find granular details about the stocks you have in your portfolio, information on equities you may want to add and also to see if you can find any trends to act on. One thing I noticed early this morning is a couple of restaurant stocks easily beat expectations. I am generally negative on the sector due to the coming costs of the Affordable Care Act, the expiration of the payroll tax holiday and the push to raise the minimum wage to $9 an hour. I only hold one stock from the sector in my portfolio as I think it is a good possibility it could get bought out if M&A activity increases. Here are the two restaurant stocks that beat expectations that are on my radar.

Burger King Worldwide (BKW) reported earnings after items of 23 cents a share, easily beating consensus calling for 15 cents a share. The organization that owns Burger King, 3G, is teaming with Warren Buffett in his buyout of Heinz (HNZ). They have done a terrific job turning around Burger King. They have added premium menu options and gourmet coffees, renovated restaurants and overhauled its advertising campaign. As a result the company is starting to take market share from McDonald's (NYSE:MCD) and same store sales increase almost 3% in the quarter with almost 4% gains in North America. The company just came public again in June. Its turnaround efforts should continue to bear fruit and it has a lot less exposure to Europe than McDonalds and still has opportunities to expand in emerging markets. This is the third straight quarter since the IPO where the company has easily beat earnings estimates. It is an interesting play at $17 a share.

The other restaurant stock that caught my eye is Ruth's Hospitality Group (NASDAQ:RUTH) owner of the iconic Ruth Chris Steak House brand. I have own the shares since May when the stock was trading at $6.50 a share. They now stand at $8 and this earnings report could be the catalyst that propels it to the next leg higher. The company reported earnings of 18 cents a share, easily beating estimates of 14 cents a share. Revenues came in over 4% above estimates. Ruth Chris' comparable store sales came in showing better than 5% growth, its 11th straight quarter of gains. The company continues to show operational improvements and it remains a possible buyout target for the same reasons I outlined in May. The market is valuing its 85 owned restaurants at less than $4mm a piece including debt. It also has almost 70 franchised restaurants and solid expansion opportunities. The stock is still too cheap at $8.

Disclosure: I am long RUTH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.