The Dow Jones U.S. Restaurant and Bar Index (DJUSRU) hit a 52-week high in trading Monday morning, and, this on a morning when all the general indexes were in the red. It seems somewhat counter intuitive that restaurant stocks (being in the consumer discretionary segment of the economy) would be this buoyant amid all the doom and gloom, uncertainty and unemployment in the domestic economy. On the other hand, it appears that the “food on the go” concept is a “trend without an end” to coin a phrase, and that the industry is doing an excellent job of stressing both the social interaction and value proposition aspects (across all price points and concepts) that they provide.
With the restaurant index hitting a new 52-week high we thought it might be beneficial to investors for us to examine the best performing individual companies in the DJUSRU index based upon their performance over the past three months. The four best performing stocks in the index are as follows:
1. Pizza Inn Holdings, Inc. (PZZI)
Pizza Inn is a $39 million market cap company with an average daily trading volume of just 70,000 shares. The stock is up 85.49% over the past three months. The Pizza Inn trademarked system operates about 300 restaurants primarily in the south and approximately 80 restaurants internationally. We fondly remember being a law student and patronizing their pizza buffet with our friends in order to take advantage of what we perceived to be compelling value proposition. Net income increased 17% in fiscal 2011 compared to fiscal 2010. Diluted earnings per share increased to $.17 from $.15 for the prior year. There are no published earnings estimates for Pizza Inn, however the pipeline for new stores continues to fill with the potential to add 15 stores worldwide. Their new concept, Pie Five Pizza Company, is seeing early success and they expect to open additional Pie Five restaurants in fiscal 2012 as well as begin franchising the new concept. Their plan is to franchise up to 100 locations per year which would have a dramatic impact on the company.
2. Panera Bread Co. (PNRA)
Panera Bread is a $4 billion market cap company with an average daily trading volume of 647,000 shares. The stock of this casual bakery-cafe chain is up 28.38% over the past three months. Panera now has 1,504 bakery-cafes open system-wide. They are targeting 15%-17% EPS growth to $1.39-$1.41 per share in the fiscal fourth quarter. For the full year 2011 they should come in at $4.63- $4.65 per share according to guidance provided by the company, which would represent diluted growth of 28%. Next year earnings are expected to continue to grow reaching $5.46 per share.
3. Domino’s Pizza, Inc. (DPZ)
Domino’s Pizza is a $1.96 billion market cap company with an average daily trading volume of 1.2 million. The stock is up 26.17% over the past three months. Domino’s is the second largest pizza company in the world based on sales and has restaurants in all 50 states and 65 international markets. More and more the company is being driven by overseas growth – currently their global retail sales have a 49% to 51% split in favor of the faster growing international side. Earnings for the current year are estimated at $1.65 and 2012 are estimated at $1.88 per share. The company continues to return cash to shareholders by repurchasing stock, the year to date figure is $130 million and growing.
4. Papa John’s International (PZZA)
Papa John’s is a $900 million market cap company with an average daily trading volume of 167,000 shares. The stock is up 20.68% over the past three months. Papa John’s is the third largest pizza company in the world and has restaurants in all 50 states and 32 international markets. We agree with their advertising that they have the best tasting chain pizza. The 2010 results provided a 20% growth in earnings over the prior year. Current year earnings are estimated at $2.08 per share and 2012 earnings are currently expected to rise to $2.45 per share. The company repurchased $45.8 million in stock last year and continues to do so this year. Targeted sustainable EPS growth is 10%-12% per the company.
While we do not believe in chasing stocks we do believe that for the most part that the “trend is your friend” and certainly the trend for restaurant stocks is up.