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Wall St wagers Trump crackdown will be limited

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Restaurant and bar stocks index has risen since election

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Dangers remain of higher labor costs, agriculture

disruption

By Waylon Cunningham

Dec 13 (Reuters) - Sweeping deportations pledged by

President-elect Donald Trump could pose an economic shock for

the restaurant industry in ways that echo the pandemic: pricier

menus, rising wages, and shuttered storefronts, economists and

some restaurateurs worry.

But Wall Street is wagering that Trump's tough talk is a

bluff ahead of a more limited crackdown that won't uproot the

restaurant industry's immigrant-heavy workforce.

The industry is one of the most reliant on workers in the

country illegally, making it a test case for whether Trump will

fulfill completely his campaign promises.

"I see little risk of them deporting people that are working

at jobs in restaurants or anywhere else in the food industry,"

says Dan Ahrens, chief operating officer and portfolio manager

of AdvisorShares. Ahrens said he believes Trump's administration

will focus on immigrant criminals, with talk of broader

deportations amounting to political rhetoric.

Thomson Reuters' index of restaurant and bar stocks has

steadily risen more than 5% since the election, outpacing the

S&P 500. In the last year, while lagging the S&P, restaurant

stocks have risen nearly 10%, buoyed by rising prices sectorwide

even as consumers are eating out less.

Gary Bradshaw, portfolio manager at Hodges Capital

Management, said he remains bullish on restaurants with growing

sales revenue and store numbers, like Chipotle, McDonald's and

Texas Roadhouse ( TXRH ). On the prospect of deportations, he said, "My

guess is the bark is a lot louder than the bite, but hey, nobody

knows. So I don't spend a whole lot of time thinking about it."

Jake Dollarhide, chief executive of Longbow Asset

Management, said he doesn't make investment decisions on

hypothetical policy. "We didn't sell our energy stocks the day

Joe Biden took office," he said. He said he believed stock

market highs and the "propensity of Americans to spend" would

continue to drive restaurant stocks up. "The perception of

grocery inflation -- whether real or not real -- benefits

restaurants," he added.

Trump has said that the initial focus of deportations will

be on criminals in the U.S. illegally, but that the net will

eventually widen to all immigrants in the country illegally.

"I think you have to do it," he told NBC last weekend.

Around 1-in-12 of the country's 10 million restaurant workers

were living in the United States illegally in 2022, according to

Pew Research Center estimates from this summer which have not

previously been published.

"Restaurants will be a hard-hit sector," if Trump lives up

to his promises on deportations, said Marcus Noland, an

economist with the Peterson Institute for International

Economics. Not only will they have to contend with their own

higher labor costs, Noland said, but they'll also have to pay

more for food because of disruptions upstream in agriculture.

"You saw this during the pandemic when many restaurants had

restricted hours, smaller menus and worse service," he said.

PIIE estimated prices in the service sector would rise 1.7%

if the Trump administration deported 1.3 million workers, or to

rise 11% if the administration fulfilled its commitment of

deporting all working immigrants in the country illegally, which

the Pew Center estimates at 8.3 million.

"We're already dealing with a huge labor shortage of food

workers," said Jacob Monty, an immigration and employment lawyer

who advises chain restaurants. "If you add more enforcement,

it's going to only get harder to find workers to staff

restaurants."

Diners are already reeling from sticker shock, and Kelsey

Erickson Streufert, the Texas Restaurant Association's chief

policy liaison, said restaurateurs in the state are concerned

that a "tipping point" has been reached for raising prices.

"Customers are only going to pay so much for a hamburger," she

said.