New research from Oppenheimer suggests that many leisure stocks may be overpriced now. The analysts suggest that investors may want to sell the following four restaurant stocks now in order to rotate into more profitable sectors, such as energy or materials.
Below we take a look at how Darden Restaurants (NYSE: RT) have fared and what analysts in general expect from them.
Note that the Oppenheimer team also singled out Carnival (NYSE: WYNN) in this research report.
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This operator of the Red Lobster, Olive Garden and other chains recently reported falling earnings that missed consensus estimates. Darden sports a market capitalization near $6 billion and offers a dividend yield near 4.8 percent. Its long-term earnings per share (EPS) growth forecast is only about five percent.
Only 10 of the 28 analysts surveyed by Thomson/First Call recommend buying shares. The mean price target, or where analysts expect the share price to go, is more than eight percent higher than the current share price. Note that shares were trading higher than that target as recently as July.
Shares have dropped more than six percent in the past week, and the share price is more than 18 percent lower than a year ago. Over the past six months, the stock has not only underperformed the broader markets, but competitor DineEquity (NYSE: DIN) as well.
The decline in the most recent Restaurant Performance Index was seen as bad news for likes of this fast-food giant. The more than $98 billion market cap company offers about a 3.3 percent dividend yield. The long-term EPS growth forecast is less than nine percent, but the return on equity is about 37 percent.
Fifteen of the 27 surveyed analysts recommend holding shares, while the rest recommend buying them. The analysts see some headroom for shares, as their mean price target is more than six percent higher than the current share price. That consensus target would be a new multiyear high.
Shares have traded mostly between $95 and $100 this summer and are in the same neighborhood they were six months ago. The stock has underperformed smaller competitors Burger King Worldwide (NYSE: BKW) and Yum! Brands (NYSE: YUM), as well as the broader markets, over the past six months.
The CEO of this operator of bakery-cafes has been trying to feed himself on $4.50 a day to bring awareness to the problem of hunger. Panera's market cap is almost $5 billion. Its price-to-earnings (P/E) ratio is a bit higher than the industry average. Short interest is about six percent of the float.
Of the 24 analysts polled, 14 recommend buying shares and two rate them at Underperform. The analysts see some headroom for shares, as their mean price target is more than 10 percent higher than the current share price. But that is less than the 52-week high reached in late May.
The share price is almost 13 percent lower than that 52-week high, as well as up less than three percent year-to-date. Over the past six months, this stock has underperformed competitors Einstein Noah Restaurant (NASDAQ: BAGL) and Starbucks (NASDAQ: SBUX), as well as the broader markets.
This struggling casual dining restaurant operator fell short on both the top and bottom lines in its most recent quarterly report. Its market cap is about $560 million. The return on equity is in the red, though the operating margin is less than the industry average. Short interest is about four percent of the float.
The consensus recommendation is to hold shares; none of the analysts who were surveyed recommends buying them. The mean price target is lower than the current share price, indicating that the analysts see no potential upside at this time.
The share price plunged following the disappointing quarterly report back in July and has not recovered. It is less than three percent higher than six months ago. Yet Ruby Tuesday has outperformed Darden Restaurants and DineEquity in that time, though it underperformed the broader markets.
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At the time of this writing, the author had no position in the mentioned equities.
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