Restaurant Wrap: McDonalds (MCD), Chipotle (CMG), Burger King (BKW)

NEW YORK (TheStreet) -- McDonald's (MCD) is formulating a loyalty program to attract a younger crowd and increase customer retention. The program, in its beta stage, will be limited to 570 stores before a nationwide roll-out is considered.

McDonald's is currently testing a mobile payment app and already offers a reloadable branded gift card.

Cafe-style Starbucks (SBUX) and Panera Bread (PNRA) have introduced similar loyalty programs to much success. McDonald's will be the first fast-food restaurant to do so.

McDonald's shares are 1.3% lower to $94.88, as of 12:30 p.m. EST.

TheStreet Ratings team rates McDonald's as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate McDonald's (MCD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in stock price during the past year, good cash flow from operations and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results." Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.4%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • McDonald's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, McDonald's increased its bottom line by earning $5.36 vs. $5.28 in the prior year. This year, the market expects an improvement in earnings ($5.60 vs. $5.36).
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Net operating cash flow has slightly increased to $1,509.8 million or 1.8% when compared to the same quarter last year. Despite an increase in cash flow, McDonald's Corp's average is still marginally south of the industry average growth rate of 6.92%.
  • 44.55% is the gross profit margin for McDonald's which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 19.71% compares favorably to the industry average.

Fast-casual Mexican restaurant Chipotle Mexican Grill (CMG) has been upgraded to overweight by Morgan Stanley analyst John Glass. The investment firm revises its price target to $485.

A Morgan Stanley survey found Chipotle had a high perception of value among restaurant customers which could lead to future traffic. Glass also expects Chipotle to increase prices and bring in more revenue next year.

Chipotle shares are down 0.56% to $423.29, as of 12:30 p.m. EST.

TheStreet Ratings team rates Chipotle Mexican Grill as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate Chipotle Mexican Grill (CMG) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value." Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.4%. Since the same quarter one year prior, revenues rose by 18.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CMG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 2.73, which clearly demonstrates the ability to cover short-term cash needs.
  • Chipotle Mexican Grill has improved earnings per share by 10.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Chipotle Mexican Grill increased its bottom line by earning $8.75 vs. $6.76 in the prior year. This year, the market expects an improvement in earnings ($10.60 vs. $8.75).
  • The net income growth from the same quarter one year ago has exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 7.5% when compared to the same quarter one year prior, going from $81.68 million to $87.85 million.
  • 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 31.84% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.


Burger King (BKW) is diversifying its menu options, offering reduced-fat, reduced-calorie French fries. Burger King's 'Satisfries' have 40% less fat and 30% fewer calories than a same-sized portion of McDonald's French fries. The fast food restaurant will charge more for the item -- $1.89 for a small, compared with $1.59 for regular fries.

Burger King shares are 0.86% lower to $19.60, as of 12:30 p.m. EST.

TheStreet Ratings team rates Burger King as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate Burger King a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet." Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Burger King has improved earnings per share by 28.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, Burger King increased its bottom line by earning 34 cents vs. 18 cents in the prior year. This year, the market expects an improvement in earnings (82 cents vs. 34 cents).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Hotels, Restaurants & Leisure industry. The net income increased by 30.5% when compared to the same quarter one year prior, rising from $48.2 million to $62.9 million.
  • Powered by its strong earnings growth of 28.57% and other important driving factors, this stock has surged by 35.77% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, Burger King's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • The debt-to-equity ratio is very high at 2.31 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, BKW has managed to keep a strong quick ratio of 2.25, which demonstrates the ability to cover short-term cash needs.

Written by Keris Alison Lahiff.

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