Yum! Brands, Inc. (YUM), McDonald’s Corporation (MCD): You Ate the Bones…

But which company has cheaper growth?

According to Yum!’s 2012 annual report, the company predicted that earnings would shrink by 6.2% in 2013, and then have a monster 22.55% growth in the following year. And so far, it’s pretty much played out that way. The shrinking part, anyways.

Sounds great, right?

Yes, but not as great as you might think. When you run the math, Yum! Brands, Inc. (NYSE:YUM)’s earnings per share will have increased 16.3% from 2012 to the end of 2014. Not a bad number by any means.

But compare it to McDonald’s Corporation (NYSE:MCD) earnings growth for 2013 and 2014. McDonald’s expects to grow earnings 6.37% for 2013, and then 9.63% for 2014. While they appear to be solid numbers, the growth still seems less impressive than Yum!’s.

But after running the numbers again, the total EPS growth for McDonald’s comes out to be 16.64%, beating Yum!’s growth by a noticeable margin. Not to mention that more earnings growth is already priced into Yum! (remember the PEG ratios). So, by investing in Yum!, you’re getting less earnings growth for a higher premium, with a company that is betting more on a riskier market.

Doesn’t sound so great when you put it that way.

You’re not bad. You’re just not great.

Yum! Brands, Inc. (NYSE:YUM) isn’t a bad company by any means. But when presented with multiple investment options, why not go for the slightly less popular and better priced alternative – especially when McDonald’s is a more established company with less risk on the table? McDonald’s carries a beta of only 0.35, which makes it much less volatile than Yum!, which has a beta of 0.80.

McDonald’s has more widespread opportunities in diverse geographical areas, and still brings in a better value than Yum! Brands. In the end, the differences discuss here have very marginal effects on which investment you might choose. But sometimes these marginal differences add up, and it can only take 1% to separate a good business from a great one.

The article You Ate the Bones… originally appeared on Fool.com and is written by Ryan Gilbert.

Ryan Gilbert has no position in any stocks mentioned. The Motley Fool recommends McDonald’s. The Motley Fool owns shares of McDonald’s. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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