Fast food is notoriously about as good for you as getting hit in the head with a 2′x4′. That said, fast food companies are now offering previously unthinkable healthy options such as — salads (gasp!); fresh fruit (oh, the humanity!); and nuts (I think Mayor McCheese just rolled over in his grave).
So, with the push to actually offering items that might not give you a coronary, are fast food company stocks looking finger lickin’ good to investors? Let’s take a look at three companies that could cause many of us to spend the rest of our lives on cholesterol reducing medicine.
Snapshot: Operates approximately 31,000 restaurants in 100 countries making it the largest restaurant chain in the world.
Recent Price: $41.10
- McDonald’s has seen its stock rise bigger than the supersized value meals they used to offer. Since July, shares are up nearly 35% and that is certainly not any kind of small fries, er, potatoes either.
- The company’s strategic alliance with China Petroleum & Chemical Corp. has enabled it to open Drive-Thru restaurants in China. Wonder what number that billions and billions served will grow to after this very wise strategic move?
- McDonald’s recently divested its Chipotle Mexican Grill holdings. While the subsidiary was a source of future growth, McDonald’s is once again flush with cash, which can mean good news for shareholders already enjoying a $1 per share dividend. Meanwhile, the company maintains its ownership interest in the expanding Boston Market chain.
- McDonald’s has received some less than stellar ratings from customers on its drive thru service and accuracy. With nearly two-thirds of Mickey D’s revenues coming from what you order from your car, the Golden Arches needs to make sure their customers keep coming back often. According to the trade magazine, QSR some franchises have taken matters into their greasy hands by hiring call centers to handle drive-thru orders.
- While the stock has had an incredible run of late you’ve got to figure the shares deserve a break today and will take a short-term breather before making another run. But long-term shareholders won’t, um, Grimace at that prospect too much.
- O.K., I am reaching here, but McDonald’s does carry $9.5 billion in debt and only $3.6 billion in cash. That said, I do not believe Ronald McDonald will be filing for bankruptcy anytime soon.
Burger King Holdings, Inc. (BKC)
Snapshot: Franchises and operates Burger King fast food restaurants. It operates 11,000 restaurants in 65 countries.
Recent Price: $18.10
- Approximately $435 million in debt has been retired at the "BK Lounge" since the company went public in May. Lower debt means increased cash flow, which can lead to expansion and investment.
- Burger King and Microsoft are joining hands to offer Xbox 360 products at the fast food king’s palace. This move could be a homerun or it could be a bust. Either way, you’ve got to respect companies that are nimble enough to partner with other behemoths and invest in bold initiatives that could spur additional growth.
- Analysts are forecasting 16 percent growth in earnings in fiscal year 2007 and 22 percent earnings expansion in fiscal 2008. If this holds true, then special stock orders for these shares will not upset its investors.
- Burger King’s IPO has not allowed investors to have it their way so far, as shares fell below their May offering price and have just recently recovered to flat-line territory.
- I don’t know about you, but that King guy in their commercials really freaks me out. Years from now, we’ll probably find out that he served time along with the Hamburglar. As for a real concern, Burger King rakes in more than
$3 billion a year, but only earns $27 million in profits. Doesn’t seem like the most streamlined bottom-line management in the world to me.
- Bad news: The stock is trading at nearly 71 times earnings for the past 12 months – which doesn’t bode well if the market ever turns south.
Yum! Brands, Inc. (YUM)
Snapshot: Develops, operates, franchises, and licenses quick-service restaurants under the KFC, Pizza Hut, Taco Bell, Long John Silver, and A&W All-American Food Restaurants brands. The company operates 34,000 restaurants in 100 countries and territories.
Recent Price: $62.13
- Yum! Brands has been well, yummy, for investors – rising 162 percent in the past three years.
- Apparently, Kentucky Fried Chicken is very popular in the land of sweet and sour chicken, as Yum! Brands sales in China sparked a 6 percent jump in international sales and a 28 percent boost in revenues across the board.
- Third-quarter profits jumped a hefty 20 percent year-over-year to
83 cents per share – a full 10 cents per share better than analysts’ projections. That’s a lot of people (and Chihuahuas) saying, "Yo quiero Taco Bell!"
- Several analysts have just downgraded the stock, citing valuations and accelerated price-appreciation lately. They certainly have a point after running up 31 percent in just two months to all-time record highs, but savvy investors may see any kind of significant sell off as a buying opportunity.
- While China has certainly spurred the significant revenue and profit growth, U.S. sales have been flat as a tortilla shell, with both Pizza Hut and Taco Bell reporting negative same-store growth during the third quarter.
- O.K., I am scrambling here again, but long-term debt jumped by 21 percent year-over-year to $1.9 billion. Meanwhile, free cash flow only grew by 9 percent. But let’s face facts, fast food chains must incur debt to expand and build restaurants, as well as acquire the land they sit upon.
Michael Abramowitz is a freelance writer based in Florida. To avoid a conflict of interest, he does not currently own any of the stocks mentioned above.
* Price quotes are from November 15, 2006.
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