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Restaurant stocks poised to go higher but beware of rising employment costs, says Piper Jaffray

There is “no misgiving” restaurant stocks are going higher, according to Nicole Miller Regan, elder restaurant analyst for Piper Jaffray.

“It’s the year of the restaurant,” she told CNBC’s “Power Lunch” on Friday.

“We be suffering with fewer restaurant stocks, creating scarcity value,” she added. “The lieutenant thing is we have balanced supply and demand. So sales performance has declined from negative to positive.”

Regan said specifically she likes impetus plays, including Darden Restaurants, McDonald’s and Shake Shack. On the other hand, she also likes recovery stories, such as Chipotle and Potbelly, and remembers the casual dining segment will improve, she said.

“We believe servant, company-owned models are expected to continue to perform well while smaller trade in capitalization stocks in general may also generate meaningful upside,” Regan pronounced. This is due to the strategic nature of these specific companies.

However, she on guards, restaurants could be impacted by rising employment costs.

“It is going to feel competent performance to hold that store level margin serious, and that’s why we’re looking at companies with the best culture married with the most suitable cuisine.”

— CNBC’s AJ Vielma contributed to this report.

Disclosures: Piper Jaffray makes a sell in securities of Chipotle, Darden Restaurants, McDonald’s, Potbelly, Shake Agitating and Restaurant Brands International.

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