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Will High Costs Hurt Habit Restaurants' (HABT) Q3 Earnings?

The Habit Restaurants, Inc. HABT is set to report third-quarter 2017 results on Nov 1, after market close.

Notably, the previous quarter marked Habit Restaurants’ 54th consecutive year-over-year growth in comparable restaurant sales.

In fact, the company expects its differentiated brand positioning, successful marketing and culinary innovations, excellent operational execution, high quality limited time offers, targeted digital strategies and innovative media partnerships to help in retaining brand loyalty, and thereby drive comps in the to-be-reported quarter as well.

In fact, the Zacks Consensus Estimate for company-operated comps in the quarter is pegged at a growth of 0.3% year over year.

Further, the consensus estimate for the quarter’s total revenue is pegged at $85.6 million, reflecting an increase of 19% over the prior-year quarter.

Nevertheless, we believe that the ongoing choppy sales environment in the overall restaurant space might limit revenue growth to some extent.

Meanwhile, though the company is looking to expand its presence via new unit openings, an increase in expenses related to pre-opening costs and the development and management of new units might dent third quarter’s profits.

Incremental investments in marketing programs and promotional activity as well as consistently higher labor expenses are also expected to weigh on margins. Furthermore, at its second-quarter conference call, management noted that commodity costs, particularly ground beef, chicken and produce might remain elevated in the short term. This, in turn, could pressurize margins in the to-be-reported quarter.

Notably, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at 3 cents, reflecting a decline of 40% year over year.

Also, our quantitative model predicts that Habit Restaurants does not have the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: Habit Restaurants has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Habit Restaurants has a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The Habit Restaurants, Inc. Price and EPS Surprise

Stocks to Consider

Here are a couple of restaurant stocks to consider as our model shows that they have the right combination of elements to post earnings beat this quarter.

El Pollo Loco Holdings, Inc. LOCO has an Earnings ESP of +1.65% and a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Noodles & Company NDLS has an Earnings ESP of +66.67% and a Zacks Rank #3.

DineEquity Inc. DIN has an Earnings ESP of +5.14% and a Zacks Rank #3.

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