Prudential Likes the Trends at Wendy's and McDonald's
Prudential initiated coverage of the restaurant industry with an outperform rating, saying the strengthening economy should be a catalyst for growth.
Analyst Larry Miller expects pricing and customer traffic to improve as the economy picks up. He started both
McDonald's
(MCD) - Get Report
and
Wendy's
(WEN) - Get Report
with buy ratings.
Miller said some restaurants are moving to a mix of fast food and casual dining in order to meet customer demand. As a result, he thinks unit growth rates will accelerate and price-to-earnings multiples will increase. The analyst believes Wendy's is best-positioned in the move to "fast-casual" dining.
The analyst also said spending and the frequency of visits has increased among some demographics. For example, dual-income households, which have been traditionally casual-dining families, are now eating more fast food.
Over the next 12 months, companies will have easier same-store sales comparisons, the analyst said. Also, a new product cycle has started, helped by higher-quality foods, Miller said.
He initiated
TST Recommends
Yum! Brands
(YUM) - Get Report
,
Darden Restaurants
(DRI) - Get Report
and
Outback Steakhouse
(OSI)
with hold ratings.
Shares of Wendy's were climbing $1.15, or 3.9%, to $30.64 recently, while McDonald's shares were up 19 cents, or 0.9%, at $22.49 on the
New York Stock Exchange
.
