Fast Food Breakout: New Names Crushing the Competition

Fast Food Breakout: New Names Crushing the Competition image Fast Food BreakoutRestaurants are seeing a comeback. McDonalds Corporation (NYSE/MCD) was a stock market darling in 2010 and 2011. The company reported an improvement in global sales, but as things slowed in 2012, the position drifted. McDonalds has regained all its stock market weakness from last year, and it’s looking set to break its all-time record high. The company’s global comparable sales have been in decline during the first two months of this year, but earnings estimates have been ticking higher. McDonalds reports mid-April.

Comparatively, The Wendys Company (NYSE/WEN) has really struggled on the stock market since 2007. I like Wendys, but the company just hasn’t been able to get customers excited about its menu and the competition for value menus has been extremely fierce. Wendys’ earnings are all over the map.

Wendys has been trading between $4.00 and $6.00 a share for the last four years and just can’t seem to get any momentum in its operations or share price. Like everything though, the position moved significantly higher on the stock market since last November. It will be tough for Wendys to convincingly break above $6.00 a share. Wall Street has been nudging the company’s earnings estimates higher for this year and next, but realistically, it’s only expecting three percent sales growth.

Burger King Worldwide, Inc. (NYSE/BKW), however, has been doing really well since relisting on the stock market last year. This play isn’t so much about revenue growth; it’s more of an earnings story. Burger King’s stock chart is featured below:

Fast Food Breakout: New Names Crushing the Competition image BKW Burger King Worldwide Inc stock chart

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Chart courtesy of www.StockCharts.com

Cracker Barrel Old Country Store, Inc. (NASDAQ/CBRL) soared on the stock market after reporting excellent earnings in its latest quarter. For a mature brand, the company is on a tear operationally. It’s not expensively priced and maintains a 2.5% dividend yield. (See “Fast Food Offers More Value Menus—and More Cash, Too.”)

If there’s been one disappointment it’s been with Darden Restaurants, Inc. (NYSE/DRI). The company’s Red Lobster restaurants have been struggling with competition and price. In its latest quarterly results, earnings disappointed the Street, but the stock recently broke out of its latest downtrend.

My takeaway from the stock market action in fast food and restaurants is that there is mostly positive momentum in revenues and earnings. With the stock market bidding those restaurants that are underperforming, the sector is bubbling.

Several new restaurant initial public offerings (IPOs) hit the market recently, and they are soaring. They are growth stories in the top-line and earnings. Bloomin’ Brands, Inc. (NASDAQ/BLMN) is among these stocks.

You know a sector is hot when secondary offerings are being snapped up with over allotments. The new restaurant IPOs that are moving right now are category-killers, especially in Tex-Mex food. Red Lobster and Chipotle Mexican Grill, Inc. (NYSE/CMG), watch out.

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