McDonald’s Corporation (MCD), Wal-Mart Stores, Inc. (WMT): An Autopsy of a Living Wage

Starbucks Corporation (NASDAQ:SBUX) is an alternative to McDonald’s for the socially responsible investor. Its benefits start at 20 hours work per week. Although pay for employees hovers around minimum wage tips are expected to supplement that and overall, benefits are better than most restaurant/cafe jobs.



MCD Total Return Price data by YCharts

Fundamentally and ethically better

Starbucks Corporation (NASDAQ:SBUX) and Costco are better names going forward than Wal-Mart and McDonald’s with better share price appreciation and expected growth rates.

Gross margin at Wal-Mart has basically stayed flat within a range of 24.66% and 25.50% over 5 years and worsening, currently at the low end at 24.66%. At Costco gross margins have ranged from a much lower 12.13% to 12.92% before the financial crisis but are improving again at a current 12.64%.

Gross margins are great at Starbucks ranging from 52.71% in 2008 to a high of 60.17% in 2010 currently at 56.96%. Gross margins at McDonald’s are almost unchanged from 37.71% in 2008 to today’s 37.61% and contracting from 40.56% in 2011.

McDonald’s is the Dividend Aristocrat but all these have yield: Starbucks 1.20%, Costco 1.10%, McDonald’s 3.00%, and Wal-Mart 2.40%.

Of these four, analysts see single-digit growth at McDonald’s with five year EPS at 8.49%, then Wal-Mart at 9.29%. Much better growth is predicted at Costco at 13.47% and Starbucks shines with 18.93% expected five year EPS growth. I think analysts are right on the money with these figures.



MCD EPS Diluted Quarterly YoY Growth data by YCharts

Trailing P/Es for Starbucks and Costco are rich at 35.33 and 25.21 respectively, these are both global companies with room for expansion. Wal-Mart has a trailing P/E of 15.25 and McDonald’s at 18.71 but they just aren’t growing and competition is nipping at their heels from Target Corporation (NYSE:TGT) (which pays its employees more) and dollar stores for Wal-Mart and The Wendy’s Co (NASDAQ:WEN), Burger King Holdings, Inc. (NYSE:BKC) and Yum! Brands, Inc. (NYSE:YUM) for McDonald’s.

The Foolish takeaway

Costco and Starbucks have performed better than Wal-Mart and McDonald’s and despite less yield total return will continue to be better. McDonald’s and Wal-Mart have headline risk as well as worsening margins. These latest headlines on living wages just reflect a long-term blind spot.

Both Costco and Starbucks are socially responsible investing darlings, especially Starbucks. Starbucks, of all of these, has the best outlook for growth and the highest gross margin and is a good placeholder for quick serve restaurants in a portfolio.

The article An Autopsy of a Living Wage originally appeared on Fool.com and is written by AnnaLisa Kraft.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale, McDonald’s, and Starbucks. The Motley Fool owns shares of Costco Wholesale, McDonald’s, and Starbucks. AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!