McDonald’s, Sysco among top defensive restaurant picks at Barclays
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Restaurant stocks are overlooked defensive options as consumers are hit by inflation, according to Barclays analyst Jeffrey Bernstein.

He wrote in a note to clients on Thursday that while restaurants fall under the consumer discretionary category, they are about as close to a staple as stocks within this grouping can get.

âWith consumers overwhelmed by inflation, we believe bigger ticket purchases are the first to be delayed, as a new car, appliance, wardrobe & vacation are not essential,â Bernstein explained. âWith that said, everyone needs to eat every day and while food at home is viewed as the more affordable option, food away from home is very dependable.â

He added that this resilience is reinforced by inflation impacting the supermarket, insulating restaurants from food-at-home preference as traffic picks up post-pandemic. Quick service restaurants and food service distributors were forwarded as making up the âextreme staple-end of consumer discretionaryâ with Sysco (NYSE:SYY
-1.7%) and McDonaldâs (NYSE:MCD
-0.9%) being the top picks within those subsectors. 

âThe consumer has the option to trade up or down within the industry and with recessionary odds on the rise and therefore affordability top of mind, trade-down is likely, with lower cost QSR historically more preferable to higher cost casual dining,â Bernstein explained. âWe believe the more defensive franchised model operated by QSR is more preferable to the more volatile company-operated model operated by casual dining.â

Historically, quick service restaurants have performed well in recessionary environments, as lower price points provide stability as consumers lose strength. Along with McDonaldâs (MCD) as the top pick, Restaurant Brands (QSR) and Wendyâs (WEN) were highlighted as attractive options amid this concern.

An even surer bet for Bernstein, however, is found in the âbig threeâ foodservice distributors Sysco (SYY
-1.7%), Performance Food Group Company (PFGC
-1.5%), and US Foods Holding Group (USFD
-3.7%),

âWith the big three only having a ~35% market share of the segment, we believe gains in the years post-COVID will be meaningful with challenges greatest for the smaller distributors, as the big three further penetrate existing accounts, add new accounts & pursue tuck-in M&A,â he explained. âLooking beyond top line, the foodservice distributors have been able to pass through the majority of their commodity cost inflation and much of their gas inflation, while seeing improvement in driver/staffing shortage/inefficiencies.â

Elsewhere, BJâs Restaurants (BJRI
-1.5%) Cheesecake Factory (CAKE
-0.2%), Brinker International (EAT
-0.6%) and Texas Roadhouse (TXRH
-0.2%) were cited as top picks in casual dining, Meanwhile, Stabucks (SBUX
+1.4%) was selected as the strongest large cap stock for the next year and Wingstop (WING
+0.7%) was made the top small-cap selection. 
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