As consumers continue to struggle to make ends meet, eating out has become less of a priority. As a result, major fast food operators have shown less than stellar year over year sales and tepid earnings forecasts. Nonetheless, as the economy gradually ekes its way out of the “Great Recession” and the employment situation slowly improves, these stocks below look to be great beneficiaries.
Should we take a bite of McDonald’s?
Surely, you have heard of McDonald’s Corporation (NYSE:MCD)‘s and quite possibly even eaten there as the “Golden Arches” are simply ubiquitous with approximately 34,000 restaurants in operation in 120 countries. With the juggernaut now churning over $27.5 billion in annual revenue and a market capitalization well in excess of $95 billion, it clearly is not going anywhere. The stock, though, has shown some volatility due to continued world-wide economic angst and some disappointing year over year sales data. However, looking at it from a value lens, the company looks worthy of a buy now.
The company is continuing to benefit from the rising worldwide middle class as “BRIC” countries continue to grow rapidly. In addition, the company continues to listen to the marketplace by adding healthy salads and other menu options, further growing its customer base. The stock is now historically cheap at just 18 times trailing earnings and 15.5x forward P/E.
With the company able to run its business efficiently, it continues to sport mouthwatering operating margins exceeding 30% and return on equity at approximately 36%. Perhaps, most importantly, the company yields a consistently growing 3.20% dividend yield compared to the average Fortune 500 company yielding a much smaller 2%. Add the fact that at its current dividend, the payout ratio is considerably below 60%, signaling that it has a strong chance of raising the dividend again soon. I think McDonald’s Corporation (NYSE:MCD)’s is a solid buy here.
Is Yum! Brands ripe for investors?
Yum! Brands, Inc. (NYSE:YUM) is a formidable competitor of McDonald’s Corporation (NYSE:MCD)’s, operating 38,000 total restaurants in 120 countries with the popular Taco Bell, KFC, and Pizza Hut brands under its umbrella. The company has recently shown some improving trends and I think there is a buying opportunity.
Yum! Brands, Inc. (NYSE:YUM) has the distinct advantage of having a diversified revenue base. In fact, its operations in China now account for approximately 50% of its total revenue and should continue to be a strong growth driver in years to come. Earlier in the year, Yum! saw sales plunge on the avian flu scare which is still causing damage. However, recent reports, show that while same store sales are not pretty, they are falling more slowly and heading back in the right direction.
The company has exceeded analysts’ estimates in each of the previous three quarters, showing that the company is performing well operationally. Moreover, like McDonald’s, management does a wonderful job running its business as operating margins are in excess of 16% and returns on equity an impressive 63%. Add in the reasonable 23x trailing and 19.5x forward P/E and that further proves that Yum! Brands, Inc. (NYSE:YUM) is showing nice value.