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

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

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!