These 2 restaurant stocks are worth a look – The Motley Fool

The restoration has had difficult years. Bloomin & # 39; Brands (NASDAQ: BLMN), owner of Outback Steakhouse and Brinker International (NYSE: EAT), owner of Chili's Grill and Bar, has been particularly affected by the traffic trends. Part of this can be attributed to changes in consumer behavior as customers demand more than ever faster service and quality preparation.

But these two companies have not been inactive in recent years. The Bloomin & Brands and Brinker management teams have invested to improve the overall dining experience, and these investments are beginning to bear fruit.

Bloomin & Brinker & Co. have experienced a noticeable improvement in sales at comparable stores recently. The bottom line is that their valuations seem cheap, which means investors might want to consider these forgotten stocks before additional positive news raises their prices.

Image Source: Bloomin & Brands.

Outback is back

Bloomin & Brands is the parent company of Outback Steakhouse, Carrabba Italian Grill, Bonefish Grill and Fleming's Prime Steakhouse and Wine Bar. It has 1,490 restaurants in 48 states and 21 countries. The largest chain, Outback, generated 51% of total sales over 12 months, up to March 2018.

After a few years in which the decline in traffic in the sector detracted from the comparable sales of Bloomin & # 39; Brands, Outback began to grow in 2017, with other restaurants following the company, reflecting several improvements made by the company. .

Notably, Outback has undergone a complete transformation, remodeling restaurants and transferring some. Management has also shifted spending on branding, for example by investing to improve the overall dining experience by improving the size of food and portions, which seems to be paying off.

The outback performed well over the past year, with five consecutive quarters of positive results. In the second quarter, US companies gained 2.8%, while Outbacks increased 4%.

In the future, management sees a growth opportunity in the delivery offer, as well as the combination of Outback and Carrabba in express outlets offering catering, delivery and delivery services to carry. Management is also targeting international growth (it now has 255 sites in 21 countries).

The stock has been more or less stable over the last five years, but adjusted earnings per share have increased 48% thanks to share buybacks. With multi-term earnings of 13 times next year and a current rate of return of 1.9%, Bloomin & Brands shares could start to climb if the company continues to post a growth in its comps.

Source of the picture: Brinker.

Brinker is gaining momentum

Brinker is one of the largest casual dining operators in the world. It owns Chili's Grill and Bar and Little Italy of Maggiano. The company has more than 1,600 restaurants in 32 countries and Chile generates more than 80% of its annual turnover.

Like Bloomin & # 39; Brands, the restaurant recession in recent years has led to a decline in same-store sales. Stock has increased by only 17% over the past five years, and share repurchases have helped to maintain earnings on a non-GAAP basis.

But the last quarters have shown positive traffic trends. In the last quarter of the company, businesses grew 0.6%, with Chile recording its best quarter in more than three years. Management has attributed the improvement to the 40% reduction in the menu, which has resulted in faster delivery of food products, which has become very important for restaurant patrons. Management also worked on quality and value.

The My Chili & # 39; s Rewards loyalty program has increased by about 20% during the 2018 fiscal year (which ended in June), giving management the opportunity to market these customers directly to generate additional short-term traffic.

In the short term, management also plans to invest in technology, particularly in its mobile application and other digital domains, to make it easier for employees to work, improve efficiency and speed deliveries.

In the longer term, Brinker plans to expand internationally by working on new franchise agreements in Asia, where it is expected to open more than 30 restaurants in 2019.

Compared to McDonaldsThe price / earnings ratio of Brinker, estimated at only 11.5 times, seems very attractive. Analysts expect Brinker to increase profits by 7.8% a year over the next five years, while McDonald's is expected to grow 8.6% a year. Still, McDonald's is trading at a P / E of 20.

An RBC Capital analyst recently upgraded Brinker shares, citing hopes of improving sales growth and low Brinker valuation.

As compilations start to become positive and the economy in general seems strong, it may be time to consider adding Bloomin's stock to Brands or Brinker – or both – before the market wakes up.