Quietly, one industry has done it quarter after quarter. Numerous stocks therein have not only beaten earnings estimates but raised forward guidance. Savvy investors probably guess health care, or perhaps security software stocks, but the industry that actually has been doing the beat-and-raise dance is restaurants.

A new research report from Stifel say that for the third consecutive quarter the firm anticipates yet another beat-and-raise delivery from the top stocks in the industry. Stifel anticipates anywhere from 0.5% to 1.7% across-the-board same-store sales beats coming in for the second quarter. In fact, the analysts’ final second-quarter survey results suggest that industrywide comparisons were up 2.5%, which the Stifel team estimates is 0.5% higher than current Wall Street expectations.

With what they term the “rising-tide” dining out recovery in full swing, and one that has been since third quarter of last year, they see substantial upside to restaurant margins going forward. The company is very bullish on three stocks now, and all are rated Buy.

Cheesecake Factory

This top restaurant stock has had a stellar year for shareholders and could be ready to tack on more gains. Cheesecake Factory Inc. (NASDAQ: CAKE) operates 192 full-service casual dining restaurants throughout the United States and Puerto Rico, including 179 restaurants under the Cheesecake Factory name, 12 under the Grand Lux Cafe and one restaurant under the RockSugar Pan Asian Kitchen mark. Internationally, nine Cheesecake Factory restaurants operate under licensing agreements. The company’s bakery division operates two bakery production facilities in Calabasas Hills, Calif., and Rocky Mount, N.C., that produce quality cheesecakes and other baked products.

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The Stifel analysts feel that not only is the company poised to deliver another quarter of solid numbers, but they believe from a trend standpoint it is well positioned to benefit from a bullish view on what they term “destination dining” concepts. These are considered premium quality, high-energy restaurants that they believe will continue to extract market share from the mass-causal chains. This makes good sense, especially as the economy improves.

Cheesecake Factory shareholders are paid a 1.21% dividend. The Stifel price target for the stock is $65. The Thomson/First Call consensus target is much lower at $54. Shares closed above the consensus figure Tuesday at $54.66.
Texas Roadhouse

This chain has grown steadily over recent years and is another Stifel favorite. Texas Roadhouse Inc. (NASDAQ: TXRH) operates as a full-service restaurant company. Its restaurants operate primarily under the Texas Roadhouse name. It also provides supervisory and administrative services for other franchise Texas Roadhouse restaurants, as well as sells franchise rights. As of February 23, 2015, the company owned and operated 450 restaurants in 49 states, as well as in four countries internationally.

The Stifel analysts think the company is a solid player in what they call the “primary event of the evening” diving space, and they also think the stock remains undervalued. Compared to some of its competition, the restaurant does not serve low-profit lunches during weekdays. These are usually low-margin tickets with little if any alcohol served. The analysts are above consensus estimates across the board for second quarter and for years 2015 and 2016.

Texas Roadhouse shareholders are paid a 1.8% dividend. The Stifel price target is raised to $45 from $42, and the consensus target is $38.78. Shares closed Tuesday at $38.38.

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Zoe’s Kitchen

This company had a very hot initial public offering last year and has jumped up big off the lows that were printed in September last fall. Zoe’s Kitchen Inc. (NYSE: ZOES) was founded in 1995 and is a fast-casual restaurant concept serving a distinct menu of fresh, wholesome, Mediterranean-inspired dishes delivered with Southern hospitality. It has 125 locations in 15 states across the United States.

Zoe’s has continued to expand, and short sellers have relentlessly continued to pressure the stock. In fact, as of June 30, 37.5% of the float was sold short. The stock was up huge in June, and one would suspect by the next report many of the shorts have covered and thrown in the towel.

The Stifel analysts feel that the Mediterranean cuisine could be the next ultra-hot and hip cuisine in the fast-casual segment of the industry. Fast-casual remains the fastest growing part of the industry, and combining a very in-demand cuisine could really make the short sellers run for the hills. Again, the Stifel team is above consensus for the second quarter, 2015 and 2016 earnings per share numbers.

The $52 Stifel price target is much lower than the consensus target of $38. Note that shares closed on Tuesday at $41.96.

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The Stifel analysts have done an outstanding job of focusing on where the upside opportunity lies, and based on the consensus price targets, they are clearly a more contrarian voice at this point. These stocks are better suited for aggressive growth accounts.

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