Investors should consider investing into the stock because it has already pulled back by 15.3% from its one-year high. This implies that the stock has already priced in the effects of missing on earnings. The stock pays out a 4.5% dividend yield, perhaps one of the highest dividends yields I have seen in the industry. The stock is projected to grow earnings by 7% on average over the next five years. Analysts will change their outward looking forecasts once the management team demonstrates that it can grow earnings once its promotional strategy ends.
McDonald’s winning hearts
McDonald’s Corporation (NYSE:MCD) is heavily focused on improving its earnings through improving the dine-in experience. The company now displays the amount of calories each meal carries, increased the selection of products it sells through McCafe, and has even changed the packaging of its products. Recently, I bought a Sausage Egg McGriddle and on the top of the bun was an embedded “M” emblem for McDonald’s Corporation (NYSE:MCD).
The company is doing its best to improve the dine-in-experience from its restaurant locations, and was able to grow U.S. comparable-store sales by 2.4%. The growth happened without the use of a deep-discount-promotional strategy that Darden Restaurants, Inc. (NYSE:DRI) used. This is great for shareholders because its means that the profit margins are likely to remain healthy.
The company currently compensates its investors with a 3.6% dividend yield. Analysts on a consensus basis anticipate the company to grow earnings by 8.6% on average over the next five years. The growth in earnings is likely to be sustained using a mix of cost-cutting, same-store-sales growth, franchise openings, and share buybacks. The stock trades at an 18.1 earnings multiple, which is reasonable when considering the consistent rate of earnings growth the company has been able to accomplish.
Conclusion
Sonic Corporation (NASDAQ:SONC) has the most growth potential of the aforementioned companies, but if investors want to add a bit of value then they should also consider Darden Restaurants, Inc. (NYSE:DRI). Of the three, McDonald’s Corporation (NYSE:MCD) is the best-in-breed as the company offers the best mix of growth, value, and income.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends McDonald’s Corporation (NYSE:MCD). The Motley Fool owns shares of Darden Restaurants, Inc. (NYSE:DRI) and McDonald’s Corporation (NYSE:MCD).
The article Sonic, McDonald’s, or Red Lobster? originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
