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)
and
Wendy's
(WEN)
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
TheStreet Recommends
Yum! Brands
(YUM)
,
Darden Restaurants
(DRI)
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
.
