Should Bulls Bite on These 3 Restaurant Outperformers?

The restaurant sector has been on fire lately, yet many components remain underloved. This lingering pessimism, juxtaposed against stellar price action, means there's plenty of potential sideline cash to fuel additional gains. In fact, of the 15 stocks under our "restaurant" umbrella, 60% are trading north of their 80-day moving average. Nevertheless, not even half of analysts consider the equities worthy of a "buy" rating, and the average time to cover among short sellers is nearly six sessions.

Against this backdrop, we're going to take a glance at a trio of restaurants with potential contrarian value: chicken chain Buffalo Wild Wings (NASDAQ:BWLD), dessert specialist Cheesecake Factory Inc (NASDAQ:CAKE), and Olive Garden owner Darden Restaurants, Inc. (NYSE:DRI).

BWLD

BWLD hit a new all-time high of $186.45 earlier today, after Morgan Stanley -- which weighed in on a slew of restaurant names -- boosted its price target to $178 from $144. Still, the revised target represents a discount to BWLD's new high, as does the security's consensus 12-month price target of $169.72. In other words, there's still plenty of room on the bullish bandwagon, and additional price-target hikes could bolster BWLD even further.

Meanwhile, more than 12% of BWLD's float is sold short, and would take about seven sessions to buy back, at the stock's average pace of trading. A short-squeeze situation could also propel Buffalo Wild Wings to higher highs, helping the stock add to its year-over-year gain of roughly 23%.

CAKE

Also notching a record peak today is CAKE, which topped out at $52.75 this morning, thanks to a price-target hike to $50 from $42 at Morgan Stanley. Again, though, the new target sits south of CAKE's current perch, as does the average 12-month price target of $48.53. What's more, despite outperforming the broader S&P 500 Index (SPX) by more than 8 percentage points during the past month, CAKE boasts just five "strong buys," compared to 13 "hold" or worse ratings. More upwardly revised price targets or a round of upgrades could lure buyers to the table.

Although short interest decreased by 9.6% during the past two reporting periods, these bearish bets still account for 12.3% of CAKE's total available float. At the security's average daily trading volume, it would take the shorts nearly nine sessions to repurchase their pessimistic positions. A continued exodus by the bears could translate into more all-time highs for Cheesecake Factory Inc.

DRI

Not to be outdone, DRI tagged a record peak of $60.96 out of the gate, after Morgan Stanley lifted its price target by $6 to $62, and thanks to a fresh "buy" rating from Citigroup analyst Gregory Badishkanian. There could be more where those came from, as more than half the analysts following outperforming DRI maintain "hold" or worse opinions, and the consensus 12-month price target sits at a paltry $56.61.

Short interest represents more than six sessions' worth of pent-up buying demand, at the equity's average pace of trading, and short-term options traders remain skeptical. The security's Schaeffer's put/call open interest ratio (SOIR) of 1.50 sits just 3 percentage points from a 12-month peak, suggesting near-term traders have rarely been more put-heavy during the past year. A change of heart among short sellers or the options crowd could mean more upside for high-flying Darden Restaurants, Inc.