TheStreet.com's Jim Cramer says that as consumers try to stretch their dining dollar, Darden, Yum! and McDonald's will benefit.
We all know we are overstored in this country and over-restauranted. There are tons of players -- so many that the competition got too hard. Now they collapse. That Uno might miss a payment, that Bennigan's and Steak & Ale are going away, that Bakers Square and Village Inn have filed for bankruptcy: All say the industry is in big trouble.
We read all of these horrible articles every day about restaurants, and yet we see that the stocks of Yum! and Darden hang in great, particularly the first, which gave hideous guidance and yet is now higher than it was before it told people commodity costs were hurting it. McDonald's? How many stocks just hit their 52-week high?
McDonald's (NYSE: MCD), whose competitors include Yum! Brands (NYSE: YUM), Burger King (NYSE: BKC), and Wendy's (NYSE: WEN), isn't known for being a part of a healthy diet, no matter how much branding it's done in that area. However, it is known for delivering good earnings. That's why investors probably aren't too worried when it comes to Wednesday, the day that the fast-food behemoth is set to hand off a sack of quarterly numbers at the earnings-report drive-thru.
According to AOL Finance, McDonald's beat the street by a wide margin in the first quarter. The call was for about 70 cents per share which Mickey Dee's beat by a whopping 11 cents. The previous quarters weren't as impressive, but they were solid enough. McDonald's seems to have the game of at least matching expectations down pat, so I am confident that come Wednesday, the company's bottom line will be close to the 86 cents per share that Wall Street is looking for in the second quarter, according to Earnings.com.
If McDonald's makes the number, then it will represent growth of over 20%. Double-digit appreciation is a valuable commodity in this time period. I can't say, though, that McDonald's won't have its challenges cut out for it. After all, inflation is affecting everyone, and fuel prices theoretically could hamper the popularity of the company's valuable drive-thru asset (I used one last evening myself). But McDonald's has that famous dollar menu going for it, so even in tough times, fans of fatty foodstuffs can still afford the oily, heart-clogging grub.
Yum! Brands (NYSE: YUM), which competes with Burger King (NYSE: BKC), McDonald's (NYSE: MCD) and Wendy's (NYSE: WEN), issued its Q2 report on Wednesday. Total revenues increased 12%, and earnings per share jumped 16% to $0.45. According to Briefing.com, Yum! beat expectations by three pennies, but it didn't seem to satisfy the big guns of Wall Street. The stock was down 5% in the after-hours session yesterday.
Some reports indicate that margins are to blame here. It's true, the margins aren't as good as one would like, but the company has nevertheless succeeded in cutting some costs. I see Yum!'s quarter as a very decent one in the context of the current bear market. In fact, the company posted worldwide same-store sales growth of 4%. U.S. comps exhibited a growth rate of 2%. There is opportunity in the U.S. for Yum! in terms of marketing for its Pizza Hut, KFC and Taco Bell brands. Management needs to see if it can increase comps in this territory. International restaurants, including locations in China, continue to do well.
I like Yum! and its long-term prospects, especially for restaurants located abroad. I also like that the dividend saw a great double-digit increase during the quarter, rising by a whopping 27%. Management is therefore signaling shareholders a high level of confidence behind the brands. I'm reticent about putting new money to work in any stock right now, but I think Yum! Brands is worth a place on the watch list and a round of due diligence on a pullback.
Disclosure: I don't own any company mentioned; positions can change at any time.
Referring to his long-recommended position in YUM! Brands (NYSE: YUM), Louis Basenese exclaims, "I've spent 1,308 days tracking its price movements and written 11,239 words expounding its virtues."
Indeed, the associate Investment Director for The Oxford Club states, "If I could only recommend one stock to own for the next decade, hands down YUM! Brands would be the one."
"YUM! Brands, operator of KFC, Pizza Hut and Taco Bell, is quietly transforming itself into an international juggernaut. Today, roughly half of its operations and profits come from outside our borders. Tomorrow (okay, not that quickly, but soon), more than two thirds of its business will be based outside the United States.
"And the transition and timing couldn't be more perfect. More than half the word's investable market capitalization is now outside the United States. And that percentage keeps growing.
McDonald's (NYSE: MCD) announced its same-store sales results for the month of April Thursday, and the data indicate a healthy fast-food business ("healthy fast food" -- isn't that an oxymoron?).
Global comps as a whole increased 5%. Comps for European locations increased 6.3%, and the Asia/Pacific/Middle East/Africa segment saw a 7.8% rise in same-store sales. McDonald's restaurants in the States increased an anemic 2%. The weak domestic sales really need to be addressed so that they can pull more weight and add to the cool story that is McDonald's.
The stock has been a pretty decent performer over the last several months, rising over 6% over the three-month timeframe, and over the one-month period, it is up over 7%. And the longer-period returns from the past are even more impressive. Imagine how McDonald's stock would perform if management figured out how to get people to visit the U.S.'s Golden Arches more often. I suppose April's performance should be praised since March saw a decline in U.S. comps, as this article makes plain, but that depreciation was the first one in five years, and that says to me that McDonald's needs to be careful.
It's all about the marketing, of course. There are a lot of choices out there -- Burger King (NYSE: BKC), Wendy's (NYSE: WEN) and Yum! Brands (NYSE: YUM) -- so I think promotion of the brand is key. Some will disagree and say that menus and pricing are the big drivers -- they are important, don't get me wrong, but perhaps McDonald's needs to take a cue from Burger King and its campaign with the creepy-king thing -- those commercials are clever. Still, if this comps reports says anything, it says that you shouldn't count the clown out -- McDonald's is a blue-chip stock that is near a 52-week high, and not only is it a great long-term/core holding, but it's also quite possibly an interesting shorter-term idea as well.
Disclosure: I don't own shares in any company mentioned here; positions can change at any time.
McDonald's (NYSE: MCD) may be the big brand name in the fast-food industry, but don't discount Burger King (NYSE: BKC). The King reported its fiscal Q3 numbers on Thursday, and they were pretty regal indeed.
Revenues increased 10%, and earnings per share did even better, rising 20% to 30 cents (that beat earnings by three pennies, says Briefing.com). Now, when talking about retail stores and fast-food joints, the issue of same-store sales always comes up, since it's such an important element to consider (be sure to keep in mind that comps must always be put in an overall context, especially if you are only measuring a one-month timeframe). Global comps increased 5.8% for the quarter, a good showing for Burger King which wants to become a force to be reckoned with around the world. The domestic side of things isn't doing too badly either as comps in the United States and Canada moved up 5.4%. Restaurant margins, however, decreased due to the challenging commodity-cost environment we all live in nowadays. Otherwise, I see these earnings as very positive for Burger King, and I am bullish on the stock.
YUM reported Q1 revenues of $2.41 billion versus consensus estimates of $2.35 billion.
Stifel Nicolaus says: "China continues to prove it's the crown jewel in the YUM business portfolio."
YUM call option volume of 1,924 contracts compares to put volume of 4,242 contracts. YUM May option implied volatility of 27 is below its 26-week average of 33 according to Track Data, suggesting decreasing movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Yum! Brands (NYSE: YUM) reported Q1 numbers Tuesday after the bell, and the company came through with double-digit growth on the bottom line. Net sales increased 8%, and earnings per share, adjusted for special items, increased 19% to $0.42.
There's a lot of cool stuff in this report that shareholders will view in a positive light. The international story for Yum! is a good one, with operating profit for this part of the company increasing 18%. China continues to be a strong territory for the KFC, Taco Bell, and Pizza Hut brands -- as many have pointed out, Yum! is a great way to gain exposure to this market. And how about this -- management saw fit to buy back shares of the company to the tune of almost a billion bucks! That says something to shareholders, as does the increased guidance. Granted, Yum! upped the per-share expectation by only a couple of pennies to $1.87 (excluding items), but that's still the right direction, isn't it? Also, according to Briefing.com, the company beat Wall Street's expectations by two cents.
Yum!, which competes with McDonald's (NYSE: MCD), Burger King (NYSE: BKC), Wendy's (NYSE: WEN), and all manner of neighborhood eateries, needs to continue the good fight on the home front. It reversed a negative same-store sales trend this past quarter, but management must not rest on this nice stat -- Yum! must explore better marketing campaigns and branding tactics to keep the comps headed higher. Yum!'s stock is not far from a 52-week high, but I'm currently bullish on its prospects.
Disclosure: I own none of the companies mentioned here; positions can change at any time.
"The Olympics have long been a boon to stock markets of host countries," notes Tony Sagami, a leading global stock advisor with a noted specialty in Asian markets.
In his Asia Stock Alert newsletter, he notes, "I believe the chief beneficiaries of the Olympic Games will be consumer and travel-related stocks. And within these sectors, I've chosen six stocks poised to bring home Olympic gold from Beijing."
"We saw a 19% gain in the Spanish stock market in the 12 months before the 1992 Barcelona Olympics, and the 27% gain in the Greek stock market in the year before the 2004 Athens Olympics. And those countries were not growing at a fraction of the breakneck pace that China is. So it wouldn't surprise me to see the Chinese stock market do even better.
"It seems like every person I see in China has a cell phone glued to their ear. And the cell phone is not just the primary voice communication medium in China; it is also the common way most Chinese access the Internet and email. In China, the cell phone 'is' the personal computer.
"Heck, most new high-rise condominium and apartment complexes being built in China aren't even wired for land lines. Once you understand the device's role, you'll see why China Mobile has more cell phone users (360 million) than the U.S. has people. I expect a lot of cell phone calls and text messages during the Beijing Olympics!
MOST NOTEWORTHY: Analog Semiconductors, OrthoVita and First Solar were today's noteworthy initiations:
Morgan Stanley initiated Analog Semiconductors with an In Line rating. The firm assumed National Semiconductor Corp (NYSE: NSM) with an Overweight rating and $26 target and is the firm's top pick; Analog Devices (NYSE: ADI) and Linear Tech (NASDAQ: LLTC) were initiated with Equal Weight ratings and a $32 target and $34 target, respectively.
Barrington believes OrthoVita (NASDAQ: VITA) is the market share and technological leader of the biomaterials market. The firm assumed shares with an Outperform rating and $4 target.
Canaccord Adams believes First Solar's (NASDAQ: FSLR) management and business model are among the best of any PV company and that execution has led to strong profitability plus a successful aggressive capacity ramp. Shares were started with a Buy rating and $325 target.
OTHER INITIATIONS:
Morgan Stanley initiated Yum! Brands (NYSE: YUM) and Domino's Pizza (NYSE: DPZ) with Equal Weight ratings and targets of $40 and $15, and also initiated McDonald's (NYSE: MCD) and Burger King (NYSE: BKC) with Overweight ratings and targets of $65 and $34.
Lehman initiated Alcoa (NYSE: AA) with an Overweight rating and $44 target.
Calyon Securities says: "To leverage its extensive local infrastructure capabilities and broaden its business base in China, YUM is rolling out a new Chinese food format in China: East Dawning."
YUM option implied volatility of 36 is above its 26-week average of 33 according to Track Data, suggesting larger movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
MOST NOTEWORTHY: The restaurant sector, American Semiconductor and First Solar were today's noteworthy initiations:
Friedman Billings resumed coverage of Cheesecake Factory (NASDAQ: CAKE) and Yum! Brands (NYSE: YUM) with Outperform ratings and a $30 target and a $46 target and Applebee's (NASDAQ: APPB) with a Market Perform rating and $25.50 target.
American Superconductor (NASDAQ: AMSC) was initiated with a Buy rating and $33 target at Jefferies, as they believe repeat orders for wind turbine electrical systems could drive rapid revenue growth from 2008-2010.
CIBC resumed coverage of First Solar (NASDAQ: FSLR) with a Sector Performer rating, as they believe shares are already pricing in the company's 2009 EPS potential.
OTHER INITIATIONS:
Morgan Stanley resumed coverage of Cablevision (NYSE: CVC) with an Underweight rating.
US Steel (NYSE: X) was initiated with a Sector Performer rating and $117 target at CIBC.
JP Morgan started SunPower (NASDAQ: SPWR) with an Overweight rating and Evergreen Solar (ESLR) with a Neutral rating.
In yet another trite but undeniably efficient marketing scheme, Yum! Brands (NYSE: YUM) restaurant Taco Bell is offering one free Beef Crunchy Tacoto every Americanif a base is stolen in the 2007 World Series.
Just one pilfered sack in the entire best-of-seven series, and a single taco -- likely worth less than your time and effort to make the trip -- can be yours for the taking.
Oh -- you have just three hours to redeem it. Between 2 p.m. and 5 p.m. on a Tuesday. Tuesday to be determined (October 30 if the first base is stolen in Game 1 or 2, November 6 if the first base is stolen in Game 3 or later).
Participating locations only.
For their sake, I hope America's college freshmen can get out of class and take advantage, if indeed a base is stolen in this year's series. Even as much of a laugher as this promotion is, it's totally plausible that no bases will be stolen.
McDonald's (NYSE: MCD) announced that global same-store sales rose 8.1% in August. With 36,000 stores worldwide and annual sales of well over $21 billion, the growth rate is extraordinary. The company's shares are up 2% in premarket trading and the stock could easily break its 52-week high of $53.22.
A food retailer this large growing this fast is likely to be eating someone else's lunch. Shares in Yum Brands (NYSE: YUM) and Starbucks (NASDAQ: SBUX) have lagged McDonald's so Wall Street may suspect that their same-store sales will not be as robust.
McDonald's has been clever, and it seems odd that other food and coffee retailers have not matched some of its moves. Many of its stores are open 24-hours. Almost all in the U.S. open at 5 a.m. to catch the early breakfast crowd. The majority of Starbucks open at 6 a.m.
Investors know that there is only so much air in any room. If McDonald's can keep increasing its sales at a rate faster than the competition, it is likely taking share and cutting into revenues at other companies.
There is no way for the likes of Starbucks to shake this perception without showing that its same-store sales can move up close to 10%.
TheStreet.com's Jim Cramer says that as consumers try to stretch their dining dollar, Darden, Yum! and McDonald's will benefit.
McDonald's
McDonald's
YUM! Brands
Yum! Brands
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