Top 4 US Restaurant Stocks to Watch According to RBC Capital Markets

Investing.com -- In a challenging market environment for restaurant stocks, RBC Capital Markets has identified standout performers in the sector. Despite recent volatility, these companies demonstrate resilience through strong unit economics, growth potential, and strategic positioning in their respective niches.

The analysis highlights companies with robust expansion plans and differentiated offerings, even as consumer spending patterns remain unpredictable. Here’s a closer look at the top restaurant stocks according to RBC Capital Markets:

Wingstop (WING) - With shares down 34% since Q2 earnings, Wingstop presents an opportunity in the growing chicken market with its specialized wings niche. Franchisee returns on invested capital reach approximately 70%, supporting double-digit unit growth.

While same-store sales growth has slowed from high-teens figures in 2023-2024, upcoming loyalty program launches leveraging data from about 60 million consumers could drive reacceleration into 2026. RBC’s analysis suggests Wingstop’s long-term target of 6,000+ units is achievable, with international expansion still in early stages.

Despite trading at 27x EV/2027E EBITDA versus the sector average of 11x, the current valuation represents a 36% discount to 10-year averages.

Recently, Wingstop received an upgrade to Strong Buy from Raymond James, which cited the potential of the company’s Smart Kitchen system. Other firms, including Stifel and Benchmark, adjusted their price targets while maintaining positive ratings on the stock.

CAVA Group (CAVA) - As the dominant brand in the fast-growing Mediterranean category, CAVA has significant unit growth potential despite its shares dropping 45% year-to-date. Improving unit economics led to increased growth guidance in Q2, even with same-store sales deceleration.

New locations are tracking toward $3 million+ in average unit volumes with estimated cash-on-cash returns of 54.5%, well above the company’s 35% IPO target. With $290 million in cash, no debt, and positive free cash flow, CAVA is positioned for continued double-digit unit growth.

RBC’s analysis estimates a long-term market potential of 2,429 units versus current 398 locations, representing 6.1x growth potential.

CAVA Group has continued its expansion with the opening of its first location in Miami. In analyst updates, CFRA lowered its price target on the stock due to expectations of slower growth, while Jefferies reiterated a Buy rating.

McDonald’s (MCD) - RBC maintains a cautious stance on McDonald’s, questioning whether its increased focus on value offerings can generate enough traffic to offset lower check averages. The company’s higher exposure to lower-income consumers presents challenges amid persistent spending pressures in this demographic.

While loyalty programs drive 2.5x higher spending after customers join, an estimated 43.5% of global loyalty growth through 2027 will come from China, where 90% of transactions are already digital. The CosMc’s beverage concept could potentially add 40-80 basis points to global 2026 system sales, but growth would likely come from higher checks rather than new transactions.

Several analyst firms have weighed in on McDonald’s, with Bernstein raising its price target on the company’s stock. KeyBanc and Jefferies also reiterated their positive ratings, with Jefferies noting the company’s value meal strategy.

Yum! Brands (YUM) - Despite being an intriguing investment, Yum! Brands presents a balanced risk/reward profile at current levels. Taco Bell US and KFC international drive approximately 80% of operating profit. While Taco Bell outperforms fast-food peers, consensus expectations for same-store sales growth exceed competitors by about 140 basis points annually, leaving little room for disappointment.

KFC faces potential increased competition internationally, and its China operations, which generated 51% of Yum’s net unit growth in 2024, dilute average unit volumes. The company’s digital initiatives through its Byte suite of products show promise but may take years to materially impact financial results.

Yum! Brands announced several key leadership appointments as part of its preparations for an upcoming CEO transition. The company also appointed Melissa Cash as the new Chief Marketing Officer for its KFC US division.

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