Is It Worth Investing in Dutch Bros (BROS) Based on Wall Street's Bullish Views?

Have you been paying attention to shares of Dutch Bros (BROS)? Shares have been on the move with the stock up 51.4% over the past month. The stock hit a new 52-week high of $52.98 in the previous session. Dutch Bros has gained 66.2% since the start of the year compared to the 24.6% move for the Zacks Retail-Wholesale sector and the 6.5% return for the Zacks Retail - Restaurants industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on November 6, 2024, Dutch Bros reported EPS of $0.16 versus consensus estimate of $0.12 while it beat the consensus revenue estimate by 4.24%.

For the current fiscal year, Dutch Bros is expected to post earnings of $0.45 per share on $1.26 billion in revenues. This represents a 50% change in EPS on a 30.21% change in revenues. For the next fiscal year, the company is expected to earn $0.56 per share on $1.52 billion in revenues. This represents a year-over-year change of 25.08% and 20.94%, respectively.

Valuation Metrics

Dutch Bros may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Dutch Bros has a Value Score of F. The stock's Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 116.9X current fiscal year EPS estimates, which is a premium to the peer industry average of 24.3X. On a trailing cash flow basis, the stock currently trades at 116.4X versus its peer group's average of 10.6X. Additionally, the stock has a PEG ratio of 3.63. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Dutch Bros currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Dutch Bros fits the bill. Thus, it seems as though Dutch Bros shares could have potential in the weeks and months to come.

How Does BROS Stack Up to the Competition?

Shares of BROS have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Shake Shack, Inc. (SHAK). SHAK has a Zacks Rank of # 2 (Buy) and a Value Score of D, a Growth Score of B, and a Momentum Score of A.

Earnings were strong last quarter. Shake Shack, Inc. beat our consensus estimate by 25%, and for the current fiscal year, SHAK is expected to post earnings of $1.16 per share on revenue of $1.25 billion.

Shares of Shake Shack, Inc. have gained 9.9% over the past month, and currently trade at a forward P/E of 145.65X and a P/CF of 45.77X.

The Retail - Restaurants industry is in the top 33% of all the industries we have in our universe, so it looks like there are some nice tailwinds for BROS and SHAK, even beyond their own solid fundamental situation.

Zacks Investment Research

The U.S. restaurant industry has grown at a solid pace over the past couple of years even though prices posed a major challenge for both consumers and operators. Higher personal income and spending have been the major factors driving sales amid inflationary pressures.

Last week, the Commerce Department reported that restaurant sales grew at a solid pace in October, and is on track to end the year on a high.

Given the positive outlook, investing in restaurant stocks, such as CAVA Group, Inc. CAVA, Dutch Bros Inc. BROS, Shake Shack Inc. SHAK, Brinker International, Inc. EAT and Kura Sushi USA, Inc. KRUS will be a prudent choice. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Sales Grow in October

The Commerce Department said last week that sales at U.S. bars and restaurants totaled $97.3 billion in October, up 0.3% month over month, after increasing 1.2% in September. On a year-over-year basis, sales at restaurants grew 4.2% in October.

For the 10 months through October, sales totaled $495.4 billion. Sales have grown faster than the rise in food inflation. According to the Labor Department, the consumer price index for food away from home rose 3.8% year over year in October, which suggests that only part of the rise in sales can be attributed to higher prices on the menu.

Inflation posed a major challenge over the past couple of years and is still above the Federal Reserve’s 2% target. However, sales growth surpassed price increases during the entire phase of high inflation. Monthly sales at restaurants have jumped 41% since February 2020, the pre-pandemic era.

Restaurant Stocks to Benefit

Rising prices have posed challenges for restaurant owners as cost-conscious customers prioritize value for money. Quick-service restaurants, especially those focused on affordability, have managed to stay strong in this tough market.

As budget-conscious diners seek economical dining options, competition in the value-driven segment has grown significantly. To attract and retain customers, brands are ramping up their promotions and rolling out money-saving deals.

Industry stakeholders are benefiting from steady demand for budget-friendly offerings and competitive pricing strategies. Many restaurants are leveraging promotional efforts, forming strategic partnerships, and launching new products to maintain customer interest.

According to the National Restaurant Association, sales at U.S. restaurants are projected to surpass $1.1 trillion in 2024. The Federal Reserve cut interest rates by 75 basis points since September after inflation declined sharply over the past year. With price pressures subsiding, the restaurant industry is poised to gain in the near future, as reduced borrowing rates are expected to benefit both restaurant owners and customers.

5 Restaurant Stocks With Upside

CAVA Group, Inc.

CAVA Group, Inc. is a category-defining Mediterranean fast-casual restaurant brand, which brings heart, health and humanity to food. CAVA is based in Washington.

CAVA Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 16.3% over the past 60 days. CAVA currently has a Zacks Rank #2.