Domino’s, Starbucks Are In Buy Zone; Fast-Food Peer Restaurant Brands Is Near A Buy With Earnings Due

Domino’s Pizza (DPZ) and Starbucks (SBUX), as well as Pizza Hut parent Yum Brands (YUM), are all in the buy zone. Among other restaurant stocks, Burger King parent Restaurant Brands International (QSR) and fast-food rival Wendy’s (WEN) are nearing buys. Domino’s stock and Starbucks stock are both on IBD Leaderboard.


Domino’s Stock

Domino’s stock is in buy range from a 284.80 buy point from a double-bottom base. Shares rose 0.4% to 290.16 in Friday’s stock market. The stock’s relative strength line is at an all-time high, while the stock is trading above its 50-day moving average. The RS line, the blue line in the charts below, track a stock’s performance vs. the S&P 500 index.

Domino’s earnings are due on Feb. 21. Analysts expect Domino’s EPS growth of 39% for the fourth quarter and 47% for the full year. Annual earnings-per-share estimates were recently revised upward.

While Domino’s earnings aren’t imminent, a common pitfall for investors is to buy a stock just ahead of its earnings report because it’s “acting right.” Sometimes the strategy works. Other times it can end badly, especially if the stock gaps down on earnings. This is why IBD has introduced an earnings options strategy. The strategy provides a way to capitalize on the upside potential of a stock’s movement around earnings, while reducing the risk of a negative reaction to an earnings report.

Domino’s stock has solid fundamentals, which are reflected in the company’s 93 Composite Rating and No. 4 ranking among its peers in the Retail-Restaurants industry group

Starbucks Stock

Starbucks stock is in buy range from an 11-week flat base, rising 0.9% to 69.75. The correct entry point is 69.08, MarketSmith analysis shows. Starbucks stock tried to break out Jan. 31 and Feb. 1, but finally closed above 69.75 this past week. Its current base is a first-stage pattern; such patterns have a higher chance of success than later-stage patterns.

Last month, Starbucks stock soared after the firm beat fiscal Q1 views for earnings, revenue and same-store sales, while also lifting full-year profit guidance largely above consensus estimates. CEO Kevin Johnson reiterated the firm’s dedication to expansion in China.

Starbucks stock has excellent fundamentals, reflected in its Composite Rating of 94. The stock boasts excellent price performance, which is why it has a Relative Strength Rating of 93.

Restaurant Brands Stock

Restaurant Brands stock is near the buy zone after building a 28-week saucer-with-handle base. The stock’s RS line has been trending generally upward since September and it is well clear of its 50-day moving average. The stock traded up in above-average volume last week.

Shares surged in late January after the parent of Burger King, Tim Hortons and Popeye’s reported some strong preliminary figures. Restaurant Brands stock has been forming a handle over a few weeks with a 64.27 buy point.

Restaurant Brands earnings are due before the open Monday. The IBD Stock Checkup Tool shows it has a top notch Composite Rating of 97, which has propelled it to the top of the industry group rankings. It stands out among restaurant stocks due to its rock-solid fundamentals. Restaurant Brands stock boasts a three-year EPS growth rate of 37%, while earnings have been growing at an average of 40% over the past three quarters.

Yum Brands Stock

Yum Brands stock is in the buy zone after closing above a 94.23 correct entry from a six-week cup base. The relative strength line looks set to go on another upward trend after taking a breather from a powerful run that started in July of last year.

Shares plunged intraday Thursday after the Taco Bell, KFC and Pizza Hut parent badly missed earnings views, though same-store sales were robust. Yum Brands stock closed Thursday up 2 cents, then dipped 0.1% to 94.49 on Friday.

Fast-food chains are having to modernize on the delivery side, and here there are good signs for the future. Cowen analyst Andrew Charles has said he expects Yum Brands’ online-ordering and delivery partnership with Grubhub (GRUB) to boost Taco Bell’s same-store sales this year.

Wendy’s Stock

Wendy’s stock is working toward an 18.36 buy point in a 25-week double-bottom base. Shares rose 2.7% to 17.74 last week, but moved in light weekly volume. However, the stock was trading in below-average volume over the last week. Its RS line has moved sideways for several months, as Wendy’s stock moves in line with the S&P 500.

Wendy’s currently holds the No. 2 spot in the Retail-Restaurants industry group. It holds a top-notch Composite Rating of 95, while its RS Rating of 83 is good.


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