Gas prices in the U.S. fell below $4 dollar per gallon for the first time since March, leaving Americans with more money to satisfy fast food cravings.
“Never short the American appetite,” Citi Research U.S. Restaurant and Leisure Analyst Jon Tower, told Yahoo Finance (video above), adding that certain restaurant brands are now in a sweet spot to serve up returns for investors.
Tower’s top picks include: YUM! Brands (YUM), Domino’s (DPZ) and Wingstop (WING). At the peak of higher gas prices in June, which hit a record $5.02 per gallon, “there was a bit of a slip” in consumers eating out, Towers noted.
“Now that we’re seeing some of the gas prices roll over, that acute pinch that many, particularly the lower income consumers, felt in late May, early June, are starting to see a bit of a turnaround,” Tower said. “So even measuring it by different methods, we dig into the CPI report and overlay that with some of the consumer expenditure survey work by income brackets and really, only the lowest income consumer is feeling the great pinch from inflation.”
With energy prices down 4.6% month-over-month, according to the Bureau of Labor Statistics’ July Consumer Price Index (CPI), Tower believes “there’s a very good play here going forward in the back half of ’22 and into early ’23 for the restaurant space.”
“We’re still big fans of what Yum is putting up…Domino’s have put up,” said Tower. “We’re looking across the rest of the space. Wingstop had a very good outlook. They’re putting out a new chicken sandwich, hitting early September,” he shares.
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Tower says investors can expect Wingstop to be out with a lot more marketing in traditional media than before, making it an “interesting brand to continue to look at.” Back in March, the company announced the resignation of CEO Charlie Morrison with then President and COO Michael Skipworth being named the helm of the restaurant chain.
Compared to a year ago, shares of YUM! Brands are down nearly 12%, Domino’s Pizza is down 22%, and Wingstop is down nearly 20%.
Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at email@example.com.