Baird analyst sees positive 2011 for restaurants

In a research note Friday, Tarantino said many restaurant chains did well in 2010 and appear to be in a correction phase. Restaurants have been relying on improved margins for their earnings growth for several quarters but Tarantino sees demand growing as the payroll tax deduction and a firmer employment picture drive up consumer confidence.

And he sees growing demand overcoming the possible drag from rising costs in the coming year, and that would support earnings and stock growth for the year.

Tarantino said companies that cater to higher-income customers, such as fast-casual restaurants and café chains, are best-positioned, though those with lower- and middle-income consumers can benefit as well.

Tarantino listed Chipotle Mexican Grill Inc. and Peet's Coffee & Tea Inc. among his top picks, given their strong earnings growth momentum and healthy financial position. He also held his "Outperform" ratings on Buffalo Wild Wings Inc., McDonald's Corp. and others

Shares of Peet's fell 3 cents to $39.43.

Chipotle shares dropped $1.96 to $224.5.

Buffalo Wild Wings shares rose 32 cents to $45.90.

Shares of McDonald's rose 15 cents to $74.36.