Darden, Brinker stocks rise on restaurant earnings

Restaurant stocks have been sharply divided this year. And it may have something to do with the number of brands they own.

shares of blinker international, Darden Restaurants and restaurant brand international Year-to-date, they’re up about 32%, 18%, and 12%, respectively. All of these companies own multiple restaurant chains, with brands ranging from Chili’s to Olive Garden, Longhorn Steakhouse, Burger King, and Tim Hortons.

On the other hand, the following stocks are mcdonalds, chipotle pepper, hippopotamus, wendy’s, shake shack and domino pizza All are down this year, with some percentages down by double digits. All of these companies have one core chain in their name.

These stock price moves highlight what some analysts see as the benefits of diversifying the restaurant business, especially at a time when one wrong move can send cash-strapped consumers elsewhere when dining out.

Investors will get another look at how whether or not they operate multiple chains affects their business results when major restaurant companies release their quarterly results starting next week. One company that could be on the lookout is Inspire Brands, which owns chains such as Dunkin’, Buffalo Wild Wings and Jimmy John’s, and is moving to go public.

A business built around one major restaurant concept relies heavily on its brand to capture consumer attention, but companies with portfolios have other potential sources of sales even if one brand loses traction.

That cushion is important, some Wall Street analysts say, but only if the other chain is strong enough to pick up the slack.

“Darden is probably the best case for the scale and diversity of the business,” said Mizuho Securities restaurant analyst Nick Setian. “If one business doesn’t work out, the others won’t either.”

Setian said there has been a dynamic in recent quarters between Darden’s main brands Olive Garden and Longhorn Steakhouse. LongHorn’s growth has outpaced Olive Garden’s in recent months, and in its most recently reported quarter, LongHorn’s comparable sales increased 6.2% compared to Olive Garden’s 1.1% increase.

KeyBank Capital Markets also cited the scope of Darden’s portfolio as positive in an October research note, saying it gives the company “broad consumer exposure.” The company’s fine dining and casual service could be beneficial in a K-shaped economy, where consumer spending varies by income.

The company rates Darden equivalent to “buy” and has a price target of $237, but the stock was trading at about $215 as of Thursday.

Similarly, Restaurant Brands International offers exposure to various categories and markets through Burger King, Tim Hortons, and Popeyes. But its portfolio doesn’t completely protect it from weaker brands.

In the second quarter, Burger King’s U.S. comparable sales accelerated to 8.5% from 5.8% in the first quarter, while Tim Hortons’ Canadian comparable sales slowed to just 0.1% from 1.5% in the same period. As a result, Burger King has been forced to pick up more of its portfolio as Tim Hortons has stalled.

Setian said Burger King’s recent strong performance is central to the company’s momentum, helped by its ability to better communicate its value proposition to customers as McDonald’s sales growth slows.

“I don’t know if[the restaurant brand]would have done as well as it did without Burger King’s current performance,” he said.

Mizuho initiated coverage of the restaurant brand on October 20th with an equivalent buy rating and a price target of $85. As of Thursday, the stock was trading at about $76.

Focusing on one brand can also be a strength. starbucks and cheesecake factory is a standout restaurant stock this year, demonstrating how a clear brand identity and investment can outperform when execution and customer demand click. Shares of both companies have risen nearly 21% and 123%, respectively, this year.

And Starbucks announced its intention not to acquire Chipotle after reportedly considering a major acquisition that would diversify its business.