Cooking Up Big Gains in Casual Dining Stocks

Shares of casual diners have been on a tear, thanks to the improving economy and consumers with a bit more discretionary cash. But while the latest surge may have some investors wary the stocks are getting pricey, at least one analyst says to grab them while they're still hot.

“We enter 2012 with stronger sales [compared to last year], with easing commodity inflation and with more menu pricing to protect margins…so the outlook going into 2012 is still looking pretty strong,” said Jeff Bernstein, senior restaurant analyst at Barclays Capital.

While Bernstein has a “neutral” rating on the whole restaurant group (which includes both casual dining and quick service), he is particularly bullish on casual dining.

“Quick service is more defensive in nature and performs better in a downturn as it did last year,” he explained on "Squawk on the Street."

“As we look to 2012, we think you’ll see a trade throughout the year out of quick service and more into the more discretionary, whether it be casual dining or whether it be the fast casual names.”

Among fast-food chains, McDonald’s posted January sales on Wednesday that beat expectationsat established restaurants across the globe, with robust U.S. performance helping to offset the impact of weakness in Europe. Earlier this week, rival Yum Brands reported earnings that topped estimates, thanks to accelerating sales and operating profit at established restaurants in China.

While Bernstein prefers casual dining companies over the quick diners, he said McDonald’s is an exception to his rule, calling the hamburger chain “the most defensive” name and a safe stock for investors to hold in their portfolios.

Among the casual dining companies, Buffalo Wild Wings topped earnings estimates as more consumers ate at both its new and existing chains. Wedbush recently raised its price target on the firm to $90 from $82. In addition, the restaurant forecast strong growth in same-store sales, undermining comments from skepticsthat earlier predicted the company will see a decline due to rising chicken wing costs.

In addition, Panera Bread and Chipotle stocks have recently hit fresh 52-week highs.

Among the fast casual names, Bernstein says companies as Brinker , Darden , Buffalo Wild Wings and Chipotle are likely to outperform the fast-food chains this year.

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