Morningstar

Why Panera Is Our Top Restaurant Pick

The market isn't giving the narrow-moat restuarant enough credit for its ability adapt to evolving consumer expectations over the next several years.

Heading into 2017, we believe the key question on most restaurant investors' minds is whether the industry will reach an inflection point with respect to sales trends. 2016 was a difficult year for most restaurant operators, with comparable traffic trends declining much of the year. It's difficult to pin the industry weakness on one factor, with elevated rent and healthcare costs, the wide gap between the food at home (grocery store) and food away from home (restaurant) CPI spread (which stands at its widest point since the early 1980s), and uneven pre-election consumer sentiment trends all probably playing a role. However, we believe an overlooked aspect of recent industry trends is many restaurant chains' slow reaction to evolving consumer expectations regarding value, convenience, health, and technology.

We believe those players that have adapted their business models for these changing demands are best positioned to outperform industry traffic trends in the coming year, and we think it would be a mistake for investors to write off these companies amid concerns about lingering industry trends. In particular, we don't believe the market is giving narrow-moat

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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