The company will be reporting Q2 earnings July 22 and will have to better those Q1 earnings of global comps, consolidated revenue, and operating income all down 1%. Diluted EPS was up 2% to $1.26. Analysts will be eager to hear about the debuts of their egg white omelet, snack wraps featuring steak and chicken, and the Fish McBites.
The Robin is bobbin‘ along
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)’s trailing P/E is a pricey 30.05 with a forward P/E of 21.98. Analysts’ growth estimates have come down from 13.77% five year EPS growth rate predicted in April to 9.50%. This has driven up the PEG from a reasonable 1.44 in April to its current 2.71.
The stock has had an amazing run, gaining 78.74% over the last year. With great stock runs comes great short interest increases, now at 13.10%.
The likely catalyst to earnings growth is its downsized concept of its 468 sit-down restaurants, Burger Works. The 5,000 square-foot casual dining restaurants are still their mainstay, but with most of the signature Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) menu and alcohol these should prosper as they open at airports, stadiums, malls, college campuses, etc. nationwide. They’ve rolled out four in Colorado and one at Ohio State University. Red Robin’s Burger Works will increasingly challenge the big three as it takes a fast food approach to expansion.
Winning with Wendy’s?
Wendy’s next big thing is the Pretzel Bacon Cheeseburger among other new menu items like waffle cone frostys. The company has also been experimenting with a Value Menu for the first time.
Wendy’s forward P/E is 25.48 with a yield of 2.70%. Its price/book is the cheapest of these at 1.18 and a PEG of 1.89. The stock has gained 24.16% over the last year yet the short interest at 13.50% is growing.
Wendy’s reported Q1 results on May 8 with reiterated guidance on EBITDA and only slightly higher EPS outlook due to refinancing benefits. Operating margin at 7.38% is better than Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)’s at 4.37% but worse than Burger King Worldwide Inc (NYSE:BKW) and McDonald’s Corporation (NYSE:MCD). Slowly growing margin expansion was cited by Wells Fargo in its initiation of coverage in June for only a Market Perform rating, although it noted its EV/EBITDA is better than competitors’.
The stock price is already beyond the median analyst price target of $5.80, and sentiment is neutral to slightly bullish with five-year EPS growth of 14.88% but an astounding 66% over the next year. Granted, 2012 EPS came in at $.02 per share and Wendy’s has already earned $0.01 per share in the first quarter, but total revenues have seen a multi-year decline from $3.42 billion in 2010 to $2.51 billion in 2012.
The company is in the midst of major revamping (flat screen TVs, cozier seating, fireplaces) to most of its 6,544 restaurants expected to complete by 2015. Closings during remodeling and expenses may hit the bottom-line until then.
Take a bite of these
McDonald’s stock hasn’t performed well since 2011. With McDonald’s Corporation (NYSE:MCD) willing to sacrifice margins near-term it may stay weak, although the yield is appetizing.
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)’s stock has soared; so despite a promising move into fast food, it should be approached with caution. Burger King Worldwide Inc (NYSE:BKW) with its growth prospects is a possible buy but you’ve been forewarned about its huge debt.
Wendy’s may be a come from behind winner here if one has a much longer term outlook, but ease in on the name on market downturns.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald’s, and Red Robin Gourmet Burgers. The Motley Fool owns shares of McDonald’s.
The article The Best Burger (Stocks) in America originally appeared on Fool.com.
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