With falling oil and gasoline prices leaving more cash in consumers' wallets, some of it is being spent dining out at chain restaurants.
In fact, December looks poised to be the strongest month for U.S. chain restaurants for 2014, according to Janney Capital Markets analysts Mark Kalinowski and Ryan Kidd. The pair sees the family-dining segment showing the best sequential improvement in fourth-quarter same store sales.
But look ahead at 2015, Kalinowski and Kidd's top picks are Yum Brands (YUM) and Papa John's International (PZZA).
Papa John's has risen 25% during the past 12 months. Today, the shares rose 2.3% to $57.12.
Yum, meanwhile, has been unappealing for investors in 2014, with the share price falling more than 13% since hitting a 52-week high of $83.44 in July amid troubles in China. Last month, the owner of KFC and Taco Bell lowered its profit outlook for a second time last year, predicting mid-single-digit EPS growth for the full-year and at least 10% EPS growth in 2015." Analysts were expecting 17% growth in 2015.
At $72.27, the shares have fallen 0.8% today.
As Kalinowski and Kidd write:
We favor the risk/reward, as we noted in our "upgrade to Buy" note from this past November 20. As it so happens, part of the "risk" portion of our thesis was tested sooner than we imagined as on December 9th Yum let it be known that Q4 2014 same-store sales for its key China businesses were trending much worse than we – and the Street in general – had been anticipating. Yet despite this bad news, YUM shares changed hands at about $73-$74 as we type this, about the same price when we upgraded. We believe this shows the resilience of the stock in terms of its ability to absorb downside risk. Part of this reflects the multiple opportunities for either the company itself – or, perhaps one or more potential, future activist investors – to unlock shareholder value.
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