Take-out pizza and wings comforted many Americans locked out of their favorite eateries last year. Now, as indoor dining rebounds, analysts are saying that the stocks behind those quarantine staples will continue to rise.
Domino’s Pizza Inc., Papa John’s International Inc. and Wingstop Inc. are all up at least 33% this year, well ahead of the 16% gain in the S&P Supercomposite Restaurants Index. Papa John’s reported earnings Thursday, joining the other two companies in showcasing second-quarter results that topped Wall Street estimates.
The earnings and revenue beats came on the heels of investor skepticism in early March when shares of all three fell to lows for the year as vaccination levels rose and indoor dining resumed. Pizza and wing dominance in delivery and digital sales helped to quash those fears.
“During the pandemic, people created a habit,” said Peter Saleh, an analyst at BTIG LLC who has a buy rating on all three companies. “Nothing has dislodged that habit of ordering in and staying home.”
At the same time that pizza and wings stocks briefly slipped, traditional full-service eateries like Cheesecake Factory Inc. and BJ’s Restaurants Inc. were booming, with both up about 60% by the end of the first calendar quarter.
“As people get vaccinated and as the dining rooms reopen, people thought that the full-service would take more share from the fast food, especially companies that rely heavily on delivery,” said Bloomberg Intelligence analyst Mike Halen.
Yet, that hasn’t proven to be the case, and it’s reflected in the shares. Cheesecake Factory has pared its gains this year through Thursday’s close to about 19% while BJ’s is up just over 1%.
The share gains by pizza and wings providers are building off of a strong 2020. Domino’s climbed 31% last year, while Papa John’s advanced 34% and Wingstop jumped 54%. The spreading Delta variant could lead to the reimposition of indoor dining restrictions, which Cowen analyst Andrew Charles said could give sales of the delivery favorites another bump.
“These companies had monster years last year, and the expectation was they were going to give some of that back as the economy has reopened,” BTIG’s Saleh said. “They just haven’t.”
Delivery growth
For obvious reasons, many companies saw delivery sales jump during the pandemic, and continued growth is on the horizon, according to a report published by the Business Research Company. The global online food delivery services market is expected to increase about 10% to $127 billion this year and to about $192 billion in 2025, it said in an April report.
“The shift in consumer behaviors in 2020 validated our growth strategy,” Wingstop Chief Executive Officer Charlie Morrison said on an earnings conference call last week. The company will continue to hone in on markets where it can operate “a high off-premise and digital-focus business,” he said.
Some companies like Domino’s also get a pricing edge by operating their own delivery platforms, compared with competitors that pay third parties like Uber Eats and Grubhub to transport orders, according to Credit Suisse analyst Lauren Silberman. Papa John’s has its own delivery service that is supplemented by third-party providers.
The uptick in digital ordering during the pandemic may help pizza and wing makers retain customers, said Charles.
“They have a very good grip on who you are and what your ordering habits are in a way that doesn’t really invade privacy,” he said. “Consumer desire for convenience is really the key.”
