Hot Picks: Three restaurant stocks positioned for stronger growth

Restaurant chains are adjusting their menus, operations and growth strategies as consumer preferences evolve and competition remains intense.

BNN Bloomberg spoke with Jon Tower, equity research analyst at Citi, about three restaurant stocks he believes are positioned to overcome near-term challenges.

Key Takeaways

• McDonald’s expects energy drinks, improved value offerings and digital initiatives to help revive U.S. same-store sales.
• Supply-chain scale, technology and more efficient labour deployment could allow McDonald’s to improve quality while controlling costs.
• Dutch Bros’ strong unit economics and growing demand for energy drinks could support continued expansion despite new competition.
• Chipotle’s food-safety concerns appear supplier-related and are expected to have only a temporary effect on customer traffic.
• Easier comparisons could help Chipotle achieve mid-single-digit comparable-sales growth by the fourth quarter.

Read the full transcript below:

ROGER: Time for Hot Picks, and today we are zeroing in on the food and beverage sector. Our next guest sees upside in his top pick, McDonald’s, despite the fast-food giant’s mixed second quarter. For more, let’s welcome Jon Tower, equity research analyst at Citi. Jon, thanks very much for joining us.

JON: Thanks for having me, Roger. How you doing?

ROGER: I’m good. I’m good. McDonald’s — they’re doing OK right now, aren’t they? They had a little mixed earnings report.

JON: Yeah, international better than the domestic market in the U.S. It sounds like they had a few things where they were offside, particularly when it comes to value during the second quarter. They’re trying to get that aligned going forward, where they get the franchisees in alignment on a price point, particularly at that lower level.

At the same time, they’re trying to cut back on activities that weren’t very fruitful for the company — some IP tie-ins, in particular, that added a lot of complexity to the stores and didn’t really cut through all the noise that consumers were seeing in the marketplace.

So, going forward, what will be interesting is, you know, the launch of energy drinks in the U.S. starting on Aug. 17. That will likely draw in a new consumer coming either breakfast or even the afternoon daypart. In tests, they were very pleased with how that part of the business performed, so that’ll launch, hopefully, a revival in their U.S. same-store sales later this month.

And then, beyond that, we’re going to have an investor event in mid-September — late September, actually — out in Chicago, and they’re going to outline their longer-term plans around remodels, where they’re going to go with food. I think you’re going to hear a message from them about higher product — excuse me — higher product quality and, frankly, while retaining the same level of pricing that they’ve got today in terms of price points, entry level, etc.

So, hospitality being a big piece of it as well, and updating the asset base for, frankly, the future. That’ll widen the moat between them and their competitive set here in the U.S., as well as across the globe. So, I think the message will be relatively positive.

It’s going to require a decent amount of money. It’s going to require a decent amount of time. McDonald’s has access to capital. The franchisees are in a great spot. So, I think there’s actually a great way for them to widen their moat versus their competitors going forward by making these investments.

ROGER: And with the quality, how do they raise the quality without raising the prices? Where can they find savings?

JON: Yeah, it’s within their supply chain, right? I mean, they’re purchasing at scale and, frankly, there will be incremental burdens on labour within the restaurants, but then there will be offsets in terms of, you know, better inventory management, better labour deployment within the stores and, frankly, better waste over time.

So, I think, particularly as technology gets weaved into the experience more and more and more. I mean, a simple example will be as they automate the drive-thru line and add more AI order-takers. You’re going to be able to redeploy that labour within the stores, whether that’s to actual food prep, hospitality or a mixture of both. That’s going to allow them to keep the costs relatively the same while also raising the quality of the product itself and the experience overall for the guests.

ROGER: OK, let’s go over to Dutch Bros. Now, what are you liking there?

JON: Yeah, look, the stock sold off really hard after what I thought was a fairly solid print just last week. They, you know, beat the expectations that was in the marketplace, or at least the sell-side expectations. They raised their guidance on the year.

They spoke to strong demand not only for their core business, new platforms like Myst, which is kind of like their functional energy platform they just launched, and, frankly, visibility into strong unit growth, driving roughly 20 per cent-plus EBITDA growth into the future.

It was a great quarter, and the stock was just a victim of high expectations going in. I think there’s a decent amount of fear in the marketplace that McDonald’s going into the energy drink platform is going to disrupt the likes of Dutch Brothers. I don’t think that’s going to be the case. I think they’re going to grow right through it and, you know, on the back end of it, you’re going to see the stock rebound pretty quickly. So, I’m expecting by mid-September, Dutch Brothers is going to be much higher than where it sits today.

ROGER: All right, and concerns about — any concerns about their expansion? They’re looking Midwest, Southeast.

JON: No, look, it’s a competitive category, but energy drinks in general are growing and growing quickly. Consumer preference continues to move in that direction, especially with younger consumers. So, I think — and, frankly, they’re moving away from coffee — so I think they’re in the right spot at the right time, where the consumer is and where the consumer is growing into.

So, I think there’s going to be plenty of runway for them to grow. Competition is out there, but there’s always competition within the restaurant category. They put up fairly strong unit economics over time. I don’t see that changing.

ROGER: OK, and Chipotle.

JON: Yeah, there’s a lot of food-safety concerns in the industry these days. Started with cyclospora, then it was salmonella. I think this is going to be a blip on the radar if we’re looking, you know, three, six months out from now.

Obviously, there’s a little bit of consumer contraction or fear that builds up, but broadly, this is not company-specific. This is not driven by a brand itself. It sounds like it was more supplier-related. So, consumers have a short memory in many respects.

So, and the quality of the food has only improved over time. The speed of limited-time offers and, frankly, new product news to the menu has increased, and it’s going to continue to run at a fairly healthy clip. So, giving consumers more and more reason to come back to the stores. Value has always been very strong for the brand, especially for what you get on the plate. And marketing’s continued to pick up.

So, I see this as acting more as a blip than a new trend for Chipotle. Another one where I think we’re going to look at this in three months from now. Many people are going to be scratching their heads as to why they didn’t jump into the stock when it was in the low 30s.

ROGER: And am I reading this right? Menu prices have risen about — almost 39 per cent over the last five years for it.

JON: Keep in mind that they also had a delivery channel that they had to account for, and they did take pricing in that channel, which, you know, inflates the overall menu, not unlike many others out there. I don’t know if that exact number or if that number is exactly accurate, but, you know, within the limited-service space, it’s been in that high-30s range, so around that level is not surprising.

ROGER: All right, and then with the concerns over the food safety, same-store sales opening dropping through 2025 into 2026. Are we seeing that? Do you think that will turn?

JON: Yeah. Look, to start 2026, we’ve had two quarters in a row of positive comps. You know, we’re going to see a little bit of a blip here in this kind of July window related to cyclospora and now the salmonella stuff. I think we’re going to bounce back pretty quickly.

Comparisons ease. I think by the end of the year, you’re going to be accelerating at a mid-single-digit clip in terms of the fourth-quarter comp, and the stock’s going to be working as a result.

ROGER: OK, Jon, we’re going to wrap it up there. But thank you, as always, for joining us.

JON: Thanks, Roger. I appreciate it.

ROGER: Jon Tower, equity research analyst at Citi.

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This BNN Bloomberg summary and transcript of the Aug. 11, 2026 interview with Jon Tower are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.