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Starbucks Corporation (SBUX), The Wendy’s Co (WEN): Examining US Restaurant Chain Leaders

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The US restaurant industry is extremely competitive due to its low overall growth profile. Instead of growing sales while maintaining market share, companies must steal market share from other companies in order to grow. Of course, expanding overseas in search of higher growth is an option and that is exactly what companies within the sector are looking for. Let’s review three US companies that are expanding overseas and putting their focus into high-growth emerging markets.

Starbucks Corporation (NASDAQ:SBUX)

Still leading the market

is the leading global food-service retailer with more than 34,000 local restaurants serving approximately 69 million people in 118 countries each day. More than 80% of McDonalds restaurants worldwide are owned and operated by independent local businessmen, making the company the world franchise business model leader.

Despite the high degree of competition in the US, McDonald’s is growing its earnings (not sales) fast. The company has had annual average earnings growth of 14.4% over the past ten years, as well as a continuous upward trend since 2004 (in the last quarter, for example, earnings grew by 2.4% year-over-year). Additionally, its operating margins are expected to grow up to 22% from the current 19.8%.

Since its top line growth is somewhat stalled (the company is growing sales at a rate of 1% year-over-year), McDonald’s is returning more funds to its shareholders. The company has increased its dividend yield, with it now standing as high as 3.10% (which is a three-year high). Trading at 17.2 times its price-to-earnings ratio, I think McDonald’s is a safe bet but with not much up-side ahead.

Starbucks Corporation (NASDAQ:SBUX), the premier roaster and retailer of high-quality coffee in the world, is now a true global company with more than 18,000 stores in 62 countries. Additionally, its expanding fast in emerging markets and is also growing through value-enhancing acquisitions such as Teavana Holdings, Inc. (NYSE:TEA). The tea company will benefit from Starbucks Corporation (NASDAQ:SBUX)’s strong distribution networks and from the buying power it has to negotiate with its supply chain.

Monica Wolfe from Gurufocus said, “Starbucks Corporation (NASDAQ:SBUX) is currently outperforming the returns of the S&P 500 and its competitors in the coffee-making industry. Starbucks Corporation (NASDAQ:SBUX) is really raking in the benefits from its acquisitions of Evolution Fresh, La Boulange and Teavana Holdings, Inc. (NYSE:TEA) as well as its expansion into a more global playing field.

The company currently trades at about 29 times its price-to-earnings ratio and pays a 1.3% cash dividend yield. I think Starbucks Corporation (NASDAQ:SBUX) will continue expanding its operating margins (which are now at 10.6%) and lifting its top-line, which is growing at an 11% year-over-year rate.

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