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Breakfast Wars Heat Up: Starbucks vs. Taco Bell vs. McDonald's

Stocks in this article: SBUXYUMMCD

NEW YORK (TheStreet) -- The breakfast wars are heating up. A week after Yum! Brands' (YUM) Taco Bell announced its new breakfast menu, coffee house Starbucks (SBUX) has expanded its own. 

On Tuesday, Starbucks announced it would introduce four new sandwiches to its breakfast menu, including ham and swiss, egg and cheddar, and turkey bacon, egg and cheddar. 

Expanded breakfast offerings seems a natural fit for Starbucks given its high traffic flow in the morning hours. The offerings are also a healthier option than Taco Bell, with a calorie range between 230 and 500 calories. 

Last week, Taco Bell announced the introduction of its breakfast line, which includes a waffle taco (eggs and sausage wrapped in a waffle shell with syrup dressing) and a crunchwrap (a burrito containing sausage, egg and a hash brown). Its breakfast products will be available as of March 27. 

On the same day, the king of fast-food breakfast McDonald's  (MCD) said it is currently considering extending its breakfast hours past 10:30 am, something which could prove a logistical nightmare given its pancakes and burgers would have to occupy the same limited kitchen space.

Must Read: Warren Buffett's 10 Favorite Dividend Stocks

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TheStreet Ratings team rates STARBUCKS CORP as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate STARBUCKS CORP (SBUX) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 11.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Hotels, Restaurants & Leisure industry average. The net income increased by 25.1% when compared to the same quarter one year prior, rising from $432.20 million to $540.70 million.
  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.78 is somewhat weak and could be cause for future problems.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 32.28% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • STARBUCKS CORP has improved earnings per share by 24.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STARBUCKS CORP swung to a loss, reporting -$0.01 versus $1.79 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus -$0.01).

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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