Inflation rose 6.5% year-over-year in December, reflecting the smallest annual increase since October 2021. On a monthly basis, prices declined by 0.1% from November. With the continued easing of inflation, the Fed signaled a rate-hike slowdown but also stressed that it won’t halt the rate hikes until inflation gets closer to its target of 2%.
Bob Michele, chief investment officer at JPMorgan Asset Management, asserts that interest rates will continue to rise, and inflation won’t go down without a recession. He believes that although the market only anticipates rates to peak at 4.9% by the middle of this year, it can eventually hit 6%, triggering a recession.
However, the fast food sector acts as a defensive hedge against inflationary and recessionary pressures since the demand for cheap fast food tends to remain consistent due to its convenience and cost-effectiveness.
Moreover, fast food chains are increasingly implementing new, advanced technologies and are emphasizing drive-thru and mobile ordering, which should drive the sector’s growth. Nearly 83% of American families eat at fast food restaurants at least once a week, and the average household spends approximately 10% of its annual income on fast food.
On top of it, the global fast-food market is projected to reach $802.62 billion in 2026, growing at a CAGR of 6.3%.
McDonald’s Corporation (MCD)
The fast-food giant MCD operates and franchises McDonald’s restaurants. Its restaurants offer locally relevant food and beverages. The company’s segments include the United States; International Operated Markets; and International Developmental Licensed Markets & Corporate.
On September 14, 2022, MCD announced the opening of Speedee Labs, a new facility at its worldwide headquarters devoted to enhancing customer experience and assisting restaurant teams. By establishing Speedee Labs, MCD should be able to increase its number of customers.
For the third quarter that ended September 30, 2022, MCD’s revenues from
franchised restaurants increased 4.6% from the year-ago value to $3.67 billion. The company’s non-GAAP net income increased 5.3% from the prior year’s period to $5.58 billion, and its non-GAAP EPS stood at $7.51, up 6.5% year-over-year.
MCD has raised its dividend for 21 consecutive years. It pays a $6.08 per share dividend annually, which translates to a 2.26% yield on the current price level. Its four-year average dividend yield is 2.26%, and its dividend payouts have grown at an 8.1% CAGR over the past five years.
Analysts expect MCD’s revenue to increase 3% year-over-year to $23.69 billion for the current fiscal year ending December 2023. Also, the consensus EPS estimate of $10.53 for the ongoing year indicates an increase of 5.8% year-over-year. Moreover, MCD surpassed its consensus EPS estimates in three of the four trailing quarters.
Shares of MCD have gained 8.6% over the past six months to close the last trading session at $274.11.
MCD’s POWR Ratings reflect its solid fundamentals. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Sentiment. In the 46-stock B-rated Restaurants industry, it is ranked #17.
To see additional POWR Ratings for Growth, Value, and Momentum for MCD, click here.
Chipotle Mexican Grill, Inc. (CMG)
CMG owns and runs Chipotle Mexican Grill locations, providing a diverse menu of burritos, burrito bowls, quesadillas, tacos, and salads. It owns and manages 2,918 Chipotle restaurants in the United States, 44 Chipotle locations abroad, and four non-Chipotle restaurants.
On November 16, 2022, CMG announced the launch of its 500th restaurant with Chipotlane®, its digital order drive-through pick-up lane. Chipotle is a crucial component of CMG’s expansion goal to reach more than 7,000 locations in North America.
For the fiscal 2022 third quarter (ended September 30, 2022), CMG’s total revenue increased 13.7% year-over-year to $2.22 billion, and its income from operations grew 40.3% from the year-ago value to $336.25 million. Also, the company’s adjusted net income grew 33% year-over-year to $265.82 million, while its adjusted EPS came in at $9.51, up 35.5% year-over-year.
The consensus revenue estimate of $8.70 billion for the fiscal year that ended December 2022 reflects a growth of 15.2% from the previous year. Likewise, the consensus EPS estimate of $33.42 for the same year indicates a 31.5% year-over-year improvement. Furthermore, CMG surpassed its consensus EPS in all four trailing quarters, which is impressive.
In addition, for fiscal 2023, the company’s revenue and EPS are expected to grow 13.5% and 29.3% year-over-year to $9.87 billion and $43.20, respectively. The stock has gained 8.3% over the past month and 17.6% over the past six months to close the last trading session at $1,551.54.
CMG’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
CMG also has a B grade for Quality and Growth. Within the same industry, it ranks #19 of 46 stocks.
Beyond what we stated above, we also have CMG’s ratings for Stability, Sentiment, Value, and Momentum. Get all CMG ratings here.
Want More Great Investing Ideas?
MCD shares were trading at $271.53 per share on Wednesday morning, down $2.58 (-0.94%). Year-to-date, MCD has gained 3.04%, versus a 4.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|MCD||Get Rating||Get Rating||Get Rating|
|CMG||Get Rating||Get Rating||Get Rating|