3 Restaurant Stocks That Will Outperform in Q3 and Q4

Key Points

• Chipotle's bad news is already priced in, and a value is present in Q3.
• Wingstop will accelerate its store count growth and accelerate the top line.
• Starbucks' CEO-led transition is gaining momentum, and visible results will soon be seen.

There are headwinds for restaurant stocks, and they may increase as the year progresses, but companies like Chipotle Mexican Grill NYSE: CMG, Wingstop NASDAQ: WING, and Starbucks NASDAQ: SBUX are on track to outperform and increase their stock prices. Each has a unique catalyst to support shareholder value and is in a position to outperform its peers and the broader market.

Analyst trends forecast a substantial upside for each, and the moves will likely be catalyzed by the calendar Q3 earnings reports. 

Chipotle Mexican Grill: The Weakness is Priced In

Chipotle Mexican Grill’s share price retreated to a multiyear low after weaker-than-expected Q2 results cut into the outlook. However, analysts at Piper Sandler think the sell-off is overdone and have upgraded the stock to Overweight.

In their view, the sell-off is pricing in a sluggish comp for next year, and numerous factors in play can individually offset the weakness. Among them are an outlook for accelerated store openings, significantly improved restaurant-level margins, and the CEO's confidence that a mid-single-digit comp CAGR can be regained. 

The analyst price target trend is tepid but aligns with a robust upside for this stock. The Q2 release catalyzed numerous price target reductions, but they aligned with the consensus $60, which forecasts a 40% upside for the stock.

Additionally, MarketBeat’s data reveals increasing coverage and firming sentiment, which provides support for the market. Long-term, Chipotle’s outlook is supported by its international growth strategy. The company has begun to accelerate openings and will generate significant growth via this vector over time. 

Wingstop to Reaccelerate Growth 

The hurdle for Wingstop’s share price was its slowing growth and decelerating comp store sales. However, the early-year results were well ahead of expectations and compounded by plans to accelerate store openings.

The net result is that revenue growth is expected to be sustained or accelerate from Q2 levels, and the analysts are responding favorably to the news. 

MarketBeat tracks ratings from 29 analysts covering WING stock, and 10 issued an update immediately following the report. The data reveals increased coverage compared to last year and Q2, firming sentiment, a bullish bias to the Moderate Buy rating, and a 10% upside at the consensus.

Based on the trends, a move to the high-end range is likely, which puts the stock in the range of $400 to $440, a new all-time high when reached. 

Institutional activity is also noteworthy. The institutions have been buying Wingstop, Chipotle Mexican Grill, and Starbucks all year. The balance of activity is about 2:1 buyers to sellers across the group, and activity was strong in the first half of Q3. 

Starbucks Turnaround Will Bear Visible Results Soon

Baird’s note to clients is that the Starbucks CEO-led transition will soon start showing visible results. The note included an upgrade to Outperform from Hold and a $115 price target, which puts the stock in the high-end range. Baird says that labor-cost increases are becoming more visible while cost-saving opportunities are expected to rise.

At the same time, comp store sales are expected to improve, driven by the Green Apron Service initiative, which aims to improve customer satisfaction and business flow-through. 

Other analysts are on board with the transition. The data tracked by MarketBeat reveals steady coverage, a firm Moderate Buy rating, and an increase to the price target since the Q2 release. The increase is noteworthy because it is the first significant increase over a year and puts the target in positive territory versus last year, forecasting a 10% upside in share prices.

The critical detail is that the revision trend leads to the high-end range of $165, a 75% increase and a new all-time high when reached.