Spice Up Your Portfolio with this Cajun Style Franchise: AFC Enterprises, Inc. (AFCE), Yum! Brands, Inc. (YUM)

But should they buy back shares at this level? Should you? As a highly franchised concept it reminds me a great deal of Jack In The Box Inc. (NASDAQ:JACK) ; not a close competitor, but still in the quick serve sector and still vying for investors’ quick serve dollars. Closer competitors are privately held Chick-Fil-A and Yum! Brands, Inc. (NYSE:YUM) Kentucky Fried Chicken division. AFC is now number two behind Yum! as a leading quick serve chicken concept globally.

Is Competition Heating Up?

Like Jack in the Box, AFC is mainly a franchiser and operator, with over 90% of the company-operated stores located in Tennessee and Louisiana. Jack in the Box, another quick serve restaurant chain, owns or operates 2,255 Jack in the Box restaurants and 636 of their QDoba Mexican Grills, a challenger to Chipotle. Unlike AFC it is purely a domestic company.

Jack in the Box is also trading at 52 week highs and has a 22.51 P/E and a PEG of 1.62. Jack in the Box reported on Feb. 27, and Q1 2013 earnings were better than expected, with adjusted earnings of $0.54 per share from $0.27 in the same quarter a year ago. Notably, QDoba Mexican Grill numbers were slightly down, but the Jack in the Box same store numbers were up.

One big difference between the two is that AFC guided higher for 2013, and Jack guided flat to lower. In particular, it guided lower for QDoba sales, which is not encouraging at all.

Then there’s Yum! Brands, which owns Pizza Hut, Taco Bell, Wing Stop, and Kentucky Fried Chicken. The global fast food leader has had a rough few months with chicken sourcing problems in China, the most important market for KFC. Interestingly, AFC is moving aggressively into Asia with 55% of their international Popeye’s locations in Korea.

Yum! is trading at a 20.04 P/E with a 2.10% yield. The stock is gradually recovering from the hit it took when the Chinese chicken furor first came out. This name has the highest PEG at 1.87, and analysts give it a median price target of $67.00, though it’s trading slightly above that.

The Final Takeaway

Of these three companies, AFC Enterprises, Inc. (NASDAQ:AFCE) is still looking good with reasonable expansion plans, good numbers, a successful ad campaign, and institutional support. Yum! is trading close to its price target and seems fairly valued here. As for Jack, the QDoba numbers are worrying, and I’d stay away.

The article Spice Up Your Portfolio with this Cajun Style Franchise originally appeared on Fool.com and is written by  AnnaLisa Kraft.

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