Burger King (NYSE: BKC - option chain) shares are falling today after posting a fourth-quarter profit of $51 million, or 37 cents per share, beating analysts' estimates of 34 cents per share. However, BKC shares are falling this morning after the company reported its total restaurant margins decreased to 13.1 percent in the quarter, hurt largely by higher commodity costs like more expensive beef and chicken. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BKC or other similar stocks like MCD or YUM.
This morning, BKC opened at $27.29. So far today the stock has hit a low of $25.17 and a high of $27.29. As of 12:21, BKC is trading at $26.03, down $1.42 (-5.2%). The chart for BKC looks neutral and S&P gives BKC a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in three months as long as BKC is below $30 at October expiration. Burger King would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
BKC hasn't been above $30 for more than a few days out of the past year and has shown resistance around $29 recently.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BKC.
This post is one in a series on prominent company nicknames. See all 25, and share your thoughts and memories about BK below in the comments.
Is there any advertising icon more creepy than the Burger King (NYSE: BKC) King? I get nightmares myself every time the mascot appears on the small screen. My opinion, though, may be in a minority since the character seems to be wildly popular.
Unlike McDonald's (NYSE: MCD), Burger King isn't afraid to be edgy and even annoying. I always have to turn the volume down on my TV whenever a BK spot is on the air or my ears will start to bleed otherwise. Burger King tried being like McDonald's and got its butt kicked. I am old enough to remember when the king was a cuddly cartoon. That strategy has now shifted and all of the in-your-face marketing appears to be paying off.
Shares of the number two burger chain are up 17% over the past year as cash-strapped consumers forgo casual dining chains for fast food. Wall Street analysts consider the stock a buy. The company is expected to post earnings of 34 cents per share on revenue of $633.26 million when it reports results Aug. 21, according to Thomson Reuters. Those are respectable numbers especially given the current economic environment.
All is not completely calm in Whopper land. Franchisees are balking at new late-night hours, and the Miami company, like every food business, is being slammed by high commodities prices. But at the end of the day, Mel Brooks had it right in History of the World Part I: "It's good to be the king."
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.
McDonald's (NYSE: MCD) has always been known for its famous French fries. Interestingly enough, though, it seems to me that the fast-food chain is becoming known these days for its coffee. I never thought McDonald's would invest as much as it has in coffee, but it looks like it's doing the right thing. According to this Bizjournals piece, McDonald's is putting its weight behind a coffee-bar initiative called McCafe. The program is being tested in various locations now and will be available nationally sometime next year.
I love the timing on this. After all, Starbucks (NASDAQ: SBUX) isn't doing so well. Not only is its stock hovering around 52-week-low territory, but the java king recently announced some store closings. That's almost unimaginable. Remember the days when every street corner needed a Starbucks? Yeah, those days are long gone. And I think McDonald's is smart in attempting to expand the brand equity of its coffee-brand portfolio. People need more of a reason to go to the palace of the hamburger-serving clown than just Big Macs these days, since the Big Mac and its various fat-saturated colleagues aren't as popular in these health-conscious times. I'm not saying drinking coffee is an exercise in life preservation, I'm just saying that it's good for McDonald's to focus on less controversial fare.
This significant foray into coffee is arguably a key reason for the company's stellar stock performance over the last few years and its competitive edge against rivals Burger King (NYSE: BKC) and Wendy's (NYSE: WEN). According to the AOL Finance snapshot, McDonald's is very much in the green for every timeframe save for year-to-date, which sees the stock down less than 1%. That's strength. McDonald's is a little below its 52-week high, and it might make for an interesting investment idea. At the very least, you can look forward to its McCafe program.
Disclosure: I don't own any company mentioned; positions can change at any time.
Burger King (Burger King Holdings, NYSE:BRC) has made good headway recently by constructing sandwiches large enough to bring down a New York crane and marketing tied to video games and hot movies. Therefore, it would have been the last company I would expect to unveil a $190 hamburger.
Actually, the burgers aren't widely available, yet- only in one location, in West London, and only once a week, by reservation. I suppose the burger, Wagyu beef piled high with white truffles, Pata Negra ham, white wine/shallot mayo, Himalayan rock salt and a soupçon of Iranian saffron. The combo includes Cristal champagne onion straws, a limited edition bottle of Coke, and Cabernet Shiraz wine from Australia .
Emma Hall, who reported on the experience for Ad Age, found the meat 'not perfect', due to the health code's requirement that it be cooked to 165 degrees, but liked the mayo, ham and truffles. Other diners she interviewed were pleased, but mostly not $190 worth of pleased. Personally, for $190 I'd expect the King to detail my car while I ate.
This mother of all burgers was created as a PR stunt to help recast the BK brand as a higher-quality product, with proceeds benefiting a local charity. The company plans to expand the limited-time program to Spain and Germany. For now, I'll have to drown my longing in a Whopper, sans truffles, sans saffron, and Cristal-free fries.
I always love news items like this. According to Reuters, there exists a $175 hamburger. You can find it in New York at a place called The Wall Street Burger Shoppe. Presumably, big traders would be the only ones able to afford it.
Well, for those who would even think to complain about the prices at McDonald's (NYSE: MCD), Burger King (NYSE: BKC) and Wendy's (NYSE: WEN), this $175 burger should put things in perspective. It doesn't sell a lot; the news piece states that the place moves about two dozen in any given thirty-day period. The Wall Street Burger Shoppe mostly sells $4 burgers.
But, really, this $175 burger is nothing more than genius marketing. The owners are obviously not under any illusion whatsoever that they can make a great return on capital by investing in such a pricey offering. All it's meant to do is to bring publicity to the establishment. It's obviously worked. As a way of branding, this goofy pricing scheme immediately differentiates the restaurant's brand from others. In fact, it was the stated intent of the owners to have the most expensive burger in the area. It's also a great differentiator between personalities. I mean, I think you can tell a lot about a person who is actually willing to buy this thing (and, you can certainly infer a lot about the person's net worth).
MOST NOTEWORTHY: Edison International, Animal Health International and SanDisk were today's noteworthy initiations:
RBC Capital initiated Edison International (NYSE: EIX) with an Outperform rating and $64 target citing strong rate base growth and the favorable environment at Southern California Edison.
Piper assumed coverage of Animal Health International (NASDAQ: AHII) with a Buy rating and $10 target, as they believe the current valuation is attractive from long-term investors.
Pacific Crest started SanDisk (NASDAQ: SNDK) with a Sector Perform rating and believes the valuation is too high following the recent strength as product margins are trending down.
OTHER INITIATIONS:
Sandler initiated Heritage Commerce (NASDAQ: HTBK) with a Hold rating and $16 target.
Burger King (NYSE: BKC) was initiated with a Buy rating and $34 target at Piper.
RBC Capital assumed U.S. Geothermal (AMEX: HTM) with an Outperform rating and $4 target.
MOST NOTEWORTHY: Lincoln Educational, Sonus Networks and Novartis were today's noteworthy upgrades:
Lehman upgraded Lincoln Educational (NASDAQ: LINC) to Overweight from Equal Weight based on improving student enrollment growth and valuation.
Merriman upgraded Sonus Networks (NASDAQ: SONS) to Buy from Neutral on the company's strong AT&T (NYSE: T) outlook and near-term upside potential from Japan. They believe shares can trade towards the $5-$6 range.
Bernstein raised Novartis (NYSE: NVS) to Outperform from Market Perform as they believe the company's diversification position it well to withstand future generic expiries.
OTHER UPGRADES:
Goldman Sachs added Burger King (NYSE: BKC) to its Conviction Buy List.
Credit Suisse upgraded Imperial Tobacco (NYSE: ITY) to Outperform from Neutral.
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.
Burger King Holdings (NYSE: BKC) shares are falling after the company announced private-equity companies will offer 15 million shares of its stock. The selling stockholders currently own 58 million shares, representing 43% of outstanding shares, so this 15M share offering represents another 11% of the company and the extra supply should keep BKC's price lower for a period. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BKC.
After hitting a one-year high of $29.19 in December, the stock hit a one-year low of $21.60 in January. This morning, BKC opened at $27.36. So far today the stock has hit a low of $27.35 and a high of $27.94. As of 12:30, BKC is trading at $27.73, down $0.73 (-2.6%). The chart for BKC looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in six and a half weeks as long as BKC is below $30 at June expiration. Burger King would have to rise by more than 8% before we would start to lose money. Learn more about this type of trade here.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
In this corner, the clown. After years of taking shots to the stomach, McDonald's (NYSE: MCD) was thought to be on the ropes, but has found new life in tightened operations, successful product launches, and a new aggressiveness. It's currently in training to take on the coffee-weight champ, Starbucks (NASDAQ: SBUX), in a no-holds-barred battle of the baristas.
In the other corner, the King. Burger King (NYSE: BKC), the burger chain with the creepiest ad campaign on television (what's with the young dude waking up to find the King in bed with him?) has thrived on a two-pronged approach; over-the-top menu items and movie/game tie-ins. BK hit the breakfast market hard with its enormous omelet sandwich, packing a wallop of 730 calories. Its Xbox game tie-in, a cheap game featuring the King was an enormous success, setting a trend that has been widely adopted.
Both chains are thriving as the third of the troika, Wendy's, continues to punch beneath its weight. With a three-year growth of almost 100% in its stock price, though, this bout clearing goes to the clown, on points.
Vote in our poll for McDonald's or Burger King as your preferred brand, and let us know in the comments why you love it.
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.
This post is one in a series on prominent company nicknames. 
McDonald's
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Here are some highlights from this past week's 
This post is part of our 
The week in preview: Chicken soup (or a doughnut) for the recession-weary soul?
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