Restaurant Stocks: Now More Appetizing

S&P says recent price declines have made select names in the industry more attractively valued

By Dennis Milton

Over the past three months, share prices across the restaurant industry have fallen significantly along with the broader market. Some stocks in the group have dropped more than 20%. At Standard & Poor's, we think the declines in some of the shares have made them more appealing, attractively valued investments. And that led us to upgrade our investment opinion on selected restaurant stocks on July 15.

The recent slump has created more reasonable valuations for some companies, given the industry's strong fundamentals, which include solid same-store sales growth, well-controlled labor and food costs, and strong balance sheets.

Based on their current valuations, we're upgrading Yum! Brands (YUM ), the name behind KFC, Pizza Hut, and Taco Bell; and CBRL Group (CBRL ), which operates Cracker Barrel restaurants, to 4 STARS (accumulate) from 3 STARS (hold). We have also raised our opinion on coffee chain Starbucks (SBUX ) to 3 STARS from 2 STARS (avoid).

Analyst Milton covers restaurant stocks for Standard & Poor's

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