We Americans just love our burgers. If you want to start a lively argument just opine that such and such makes the best burger. Google “best burger in America” and you get over 35 million results.
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) and the big three, McDonald’s Corporation (NYSE:MCD), The Wendy’s Company (NASDAQ:WEN) and Burger King Worldwide Inc (NYSE:BKW), are falling over themselves to create the zenith, the pinnacle, the best burger. For only pennies more, independent chains like In-and-Out burger, Shake Shack, and Five Guys are selling better burgers. The independents made the top three in the list of top ten chain burgers according to the Daily Meal’s burger experts. None of the publicly traded chains made the cut, but millions eat their burgers every day. What is going on in this cutthroat arena?
The King grins
Burger King Worldwide was taken public last summer by the same people who took them private in 2010, 3G Special Situations Fund (also the same group that worked with Warren Buffett on Heinz). The fund still owns the lions’ share of the stock. The company is shareholder-friendly since going public, announcing a stock buyback of $200 million through 2016 and raising the dividend by 20%.
Burger King is the number two burger chain worldwide behind McDonald’s Corporation (NYSE:MCD). Burger King operates 11,707 company-owned and franchised restaurants worldwide. It is a faster grower, and its operating margin at 31.95% is better than 30.15% at McDonald’s.
Burger King Worldwide Inc (NYSE:BKW) has been upping its burger game with chipotle burgers, turkey burgers, veggie burgers, and bacon cheddar stuffed burgers. It is making some gastronomic strides, and the stock price appreciation of 27.99% over the last year is proof.
Caveats with Burger King are its 12.70% short interest, its price/book at 5.73, and especially its debt of $3.05 billion to $598 million cash.
The clown frowns
McDonald’s Corporation (NYSE:MCD)’s stock has underperformed the S&P 500 over the last year, gaining only 11.90%. It offers the largest yield at 3.10%, but the stock hasn’t benefited from this last year’s search for yield. McDonald’s is a Dividend Aristocrat, having raised the dividend for more than 25 consecutive years.
It trades at a higher price/book of 6.58 and, as mentioned before, at a PEG of 2.04 to Burger King Worldwide Inc (NYSE:BKW)’s 1.50 it won’t grow as fast. Margins have been declining over the last three years in Europe, Asia, and the US as the company scrambles to bring in traffic with promotions and new menu items. On the Q1 earnings call CFO Peter Benson stated they were willing to sacrifice a little margin to win market share.