Innovation Sets This Fast Food Giant Apart: McDonald’s Corporation (MCD), The Wendy’s Company (WEN), Yum! Brands, Inc. (YUM)

McDonalds is the most innovative company in its industry, and oftentimes they are a trendsetter, copied by their aforementioned rivals. If you don’t believe me about McDonald’s innovation run a search for a McDonald’s menu from 2000 and compare it with today’s. Do the same for Burger King. Theirs looks almost identical to today’s, save for a few items and the fact that the menu is on LCD screens now.

Valuation

Let’s see how McDonald’s compares to its rivals in terms of valuation. McDonald’s trades for 18.6 times TTM earnings, with a 9% forward growth rate projected (which I feel is a bit conservative, especially if their new breakfast offerings catch on). The company also offers a dividend yield of approximately 3.1%, which has been increased like clockwork every year in recent history (see below).

The Alternatives

Burger King Worldwide (NYSE:BKW) seems a bit pricey in comparison, trading for 27.7 times 2012’s earnings. Consensus estimates call for earnings to rise at a 16% rate over the next several years; however I think this is far from certain. Additionally, Burger King is carrying over $3 billion in debt on its balance sheet (almost half of its market cap).

The Wendy’s Company (NASDAQ:WEN) trades for an even pricier 32.6 times earnings, and looks to be by far the most speculative play of the group. The average of the analysts covering the stock calls for about 10% annual growth going forward, but the estimates range from zero growth to over 20% annually. In other words, no one really knows what’s going on with Wendy’s. The Wendy’s Company (NASDAQ:WEN) also has an excessive level of debt, even more that Burger King in relation to their size.

While Burger King and The Wendy’s Company (NASDAQ:WEN) are the closest competitors, product-wise, I’d like to take a quick look at another company with a similar global reach and brand recognition to McDonald’s, Yum! Brands, Inc. (NYSE:YUM), which is the parent company of KFC, Pizza Hut, and Taco Bell.

With a total of about 39,000 units all over the world, you can see why I think Yum! Brands, Inc. (NYSE:YUM) makes a more valid comparison to McDonalds than the two other burger chains. Yum! Brands, Inc. (NYSE:YUM) trades for 20.8 times earnings, with 12% annual growth going forward. They also have a very acceptable level of debt, and pay a decent dividend (1.9%).

To Sum It Up…

While Yum! Brands, Inc. (NYSE:YUM) looks like a pretty good company (and it is), I still prefer McDonald’s Corporation (NYSE:MCD). I believe in them as an innovator and trendsetter and I think their growth will exceed all expectations as they transition to accommodate a healthier-eating public. Also, as an income investor, their track record of dividend raises is one of the best in the market. I highly recommend that all investors take a serious look at McDonald’s for their portfolios, as a great play for years to come.

The article Innovation Sets This Fast Food Giant Apart originally appeared on Fool.com and is written by Matthew Frankel.

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