The U.S. restaurant industry was impacted by high wages, food cost inflation and traffic woes in 2024 after two years of strong growth. However, the industry turned around in early 2025 buoyed by an aggressive interest rate cut by the Fed in second-half 2024.
At present, the Zacks-defined Retail – Restaurant Industry is currently in the top 23% of the Zacks Industry Rank. Since it is ranked in the top half of Zacks Ranked Industries, we expect the restaurant industry to outperform the market over the next three to six months. Year to date, the restaurant industry has climbed 7.8% compared with the 4.1% rise of the S&P 500.
At this stage, we recommend five U.S. restaurant stocks with a favorable Zacks Rank and strong near-term price upside potential. These are Texas Roadhouse Inc. TXRH, Shake Shack Inc. SHAK, Kura Sushi USA Inc. KRUS, Sweetgreen Inc. SG and Potbelly Corp. PBPB.
Near-Term Catalysts
The Fed reduced the benchmark lending rate by 1% in 2024. Lower borrowing costs will substantially help both restaurant owners and consumers. Lower borrowing costs typically help boost consumer spending. Also, low interest rates will allow restaurant owners to proceed with their expansion plans.
The Fed also believes that inflation is now on track to gradually meet its 2% target. Market participants are hopeful of another 50-basis point rate cut by the end of this year, which will further help the restaurant industry.
Despite inflationary pressures, sales at U.S. restaurants continue to rise. According to the Commerce Department, sales at food services and drinking establishments increased 0.9% month over month and 5.4% year over year in January.
Restaurant operators' focus on digital innovation, sales-building initiatives and cost-saving efforts has acted as a catalyst. With the growing influence of the Internet, digital innovation is the need of the hour. Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales.
Restaurant operators constantly partner with delivery channels and digital platforms to drive incremental sales. Partnerships with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, and the rollout of self-service kiosks and loyalty programs continue to drive growth. Restaurant operators also focus on driverless delivery systems to augment sales.
The industry is gaining from the increase in off-premise sales, which primarily include delivery, takeout, drive-thru, catering, meal kits and off-site options, such as kiosks and food trucks. Most restaurant operators have initiated the testing of ghost or virtual kitchens. The idea of providing off-premise offerings and a connected curbside service has been garnering positive customer feedback.
5 U.S. Restaurant Stocks to Buy
These five U.S. restaurant stocks have strong revenues and earnings growth potential for 2025. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Texas Roadhouse Inc.
Texas Roadhouse is a full-service, casual dining restaurant chain offering assorted seasoned and aged steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. TXRH operates restaurants under the Texas Roadhouse and Aspen Creek names.
TXRH also provides supervisory and administrative services for other licensed and franchise restaurants. Its second-quarter top line is likely to have been aided by productivity and margin enhancement initiatives and operational excellence across its restaurants.
Impressive Short-Term Price Upside for TXRH Stock
Texas Roadhouse has an expected revenue and earnings growth rate of 9.9% and 13.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% in the last 30 days.
The short-term average price target of brokerage firms for the stock represents an increase of 16.6% from the last closing price of $171.70. The brokerage target price is currently in the range of $162-$260. This indicates a maximum upside of 51.4% and a maximum downside of 5.6%.
Shake Shack Inc.
Shake Shack owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally. SHAK offers hamburgers, chicken, hot dogs, crinkle cut fries, shakes, frozen custard, beer, wine, and other products. SHAK is benefiting from robust same-shack sales, digital initiatives and unit expansion. Also, the emphasis on innovative menu offerings, targeted promotions and expanded digital bodes well.
Shake Shack has also been making more investments in digitization in an effort to sustain its digital guest enhancement strategies in the near term. SHAK's efforts to enhance guest engagement and brand visibility through effective marketing strategies are supporting its performance in a competitive market.
Excellent Short-Term Price Upside for SHAK Shares
Shake Shack has an expected revenue and earnings growth rate of 16.8% and 39.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.6% in the last seven days.
The short-term average price target of brokerage firms for the stock represents an increase of 23.3% from the last closing price of $108.40. The brokerage target price is currently in the range of $107-$160. This indicates a maximum upside of 47.6% and a maximum downside of 1.3%.
Kura Sushi USA Inc.
Kura Sushi USA operates technology-enabled Japanese restaurants in the United States. KRUS offers nigiri, roll, hand roll, gunkan and desserts.
Robust Short-Term Price Upside for KRUS Stock
KRUS has an expected revenue and earnings growth rate of 18.3% and more than 100%, respectively, for the current year (ending August 2025). The Zacks Consensus Estimate for current-year earnings has improved more than 100% in the last 60 days.
The short-term average price target of brokerage firms for the stock represents an increase of 37.5% from the last closing price of $77.44. The brokerage target price is currently in the range of $68-$120. This indicates a maximum upside of 55% and a maximum downside of 12.2%.
Sweetgreen Inc.
Sweetgreen manages a chain of salad restaurants and operates fast food restaurants serving healthy foods in the United States. SG offers salads, frozen yogurts, nutritional specialties, and seasonal selections. SG also offers stainless steel bottles, gift cards, shirts, salad blaster bowls and reusable shopping bags through its online stores.
Robust Short-Term Price Upside for SG Shares
Sweetgreen has an expected revenue and earnings growth rate of 18.3% and more than 100%, respectively, for the current year (ending August 2025). The Zacks Consensus Estimate for current-year earnings has improved more than 100% in the last 60 days.
The short-term average price target of brokerage firms for the stock represents an increase of 52.1% from the last closing price of $27.19. The brokerage target price is currently in the range of $28-$49. This indicates a maximum upside of 80.2% and no downside.
Potbelly Corp.
Potbelly owns, operates, and franchises Potbelly sandwich shops. PBPB manages establishments for consuming food on premises. Its offerings include sandwiches, salads, soups, chili, chips, cookies, ice cream, and smoothies. Potbelly serves customers throughout the United States.
Attractive Short-Term Price Upside for PBPB Stock
Potbelly has an expected revenue and earnings growth rate of 4.3% and 12.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8% in the last 60 days.
The short-term average price target of brokerage firms for the stock represents an increase of 20.7% from the last closing price of $12.39. The brokerage target price is currently in the range of $14-$16. This indicates a maximum upside of 29.1% and no downside.
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Texas Roadhouse, Inc. TXRH: Free Stock Analysis Report
Potbelly Corporation PBPB: Free Stock Analysis Report
Shake Shack, Inc. SHAK: Free Stock Analysis Report
Sweetgreen, Inc. (SG): Free Stock Analysis Report
Kura Sushi USA, Inc. (KRUS): Free Stock Analysis Report
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