2017 is poised be a difficult year for the restaurant industry.
However, some restaurant chains are still expected to shine.
Every year at the annual retail-centric ICR Conference, which is taking place this week in Orlando, Florida, sell-side equity research analysts make bets on which restaurant stocks will soar in the new year. Analysts pick just one of the public restaurant companies attending the conference as the "best restaurant stock pick" of 2017.
Out of public restaurant companies attending the event this year — which include chains like Chipotle, Shack Shake, Domino's, and Panera — here are the five that analysts are predicting will dominate in 2017.
Panera Bread was the most popular pick, with four analysts from Barclays, Piper Jaffray, Cowen and Company, and Jefferies betting on the fast-casual chain.
One reason for Panera's popularity is its efforts to modernize, including its push to replace human cashiers with kiosks dubbed Panera 2.0 and, more recently, its investment in delivery.
"With Panera 2.0 effectively implemented across the company base, investor attention has turned to the implementation of delivery, which our delivery model suggests will annually contribute ~1-2% same store sales and 2-3% to [earnings per share] growth through 2020," wrote Andrew Charles of Cowen and Company.
These changes, coupled with the company's doubling down on menu transparency, resulted in analyst agreement that the company was about to transition from recovery mode to a period of growth.
Buffalo Wild Wings
Guggenheim Securities Matt DiFrisco made the controversial call that Buffalo Wild Wings will be one of the biggest winners of 2017, due to new strategies, more efficient labor usage, and a favorable football schedule (there will be a five more bowl games in the first quarter of this year than there were last year).
"During the August Analyst Day, management highlighted 4 [same-store sales] drivers: Lunch, Takeout/ Delivery, Value and Loyalty giving tangible progress updates," wrote DiFrisco. "In our opinion, these categories should differentiate BWLD and if executed, meaningfully reverse the negative 2016 [same-store sales]."
DiFrisco also noted that the involvement of activist investor Marcato Capital and the appointment of a new CFO in October could have a positive impact on the company, especially when it comes to increasing the percentage of franchised locations — something that he believes will help the company.
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Dave & Buster's
Dave & Buster's caught analysts' attention as the experience-focused chain has gained momentum in the last few years, with Andy Barish of Jefferies and Sharon Zackfia of William Blair & Company choosing the company as their top pick for 2017.
"With about half of its revenue stemming from games, Dave & Buster's has an inherently experiential nature that has been a strong driver of same-store sales gains and traffic well ahead of the industry average over the past several years," Zackfia wrote.
Another bonus for Dave & Busters is that the chain has "no direct competitors," according to Barish. Despite the fact restaurants are increasingly focusing on "experience," Dave & Busters is the largest chain to make about half of its revenue from games and not food.
The company behind Americans' favorite burger is a hot pick, with Paul Westra of Stifel and Nick Setyan of Wedbush choosing it as their No. 1 stock for 2017.
"At this stage, we are bullish on HABT's concept positioning, which we believe is representative of an up-and-coming 'second wave' of quick-casual restaurants that are destined to dominate the restaurant landscape over the next 30 years," Westra wrote.
According to Westra, Habit is well-positioned due to its appeal among families, dine-in, and dinner customers, as well as its focus on a single product: burgers.
Red Robin Gourmet Burgers is "undervalued," according to Brian Vaccaro of Raymond James.
Vaccaro wrote that Red Robin is well-positioned because it has a chance to improve under "key hires" of Carin Stutz as COO and Guy Constant as CFO. Under some new leadership, Vaccaro is betting on a turnaround for Red Robin in 2017.
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