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With gas prices at all-time highs and food and commodity costs soaring, what, if anything, would make a reasonable investor buy a casual dining stock?
Speaking on Thursday’s Closing Bell, Karen Finerman said that it would have to be extremely cheap on a valuation basis to become compelling. Gas and food costs have teamed up to cripple even the best and most well-managed causal dining companies. Finerman noted that Chipotle [CMG
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], which is known as best of breed in the space, just reported good earnings but had to guide down due to headwinds from skyrocketing beef, chicken and even avocado prices. If Chipotle can’t persevere, what chance does the rest of the industry have?
YUM! Brands [YUM
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] looks a bit more compelling, she said, just because it is seeing strong growth in China. The same could be said for McDonald’s [MCD
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].
But a stock like IHOP [IHP
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], even though it has stellar management, as far as Finerman is concerned, has not quite reached intriguing valuation levels. The company’s acquisition of Applebee’s probably couldn’t have come at a worse time – right at the beginning of the consumer slowdown – but Finerman holds out hope that IHOP’s franchise-based business model will eventually overcome the consumer obstacles and lead the stock higher.
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