The headwinds of tight labor supply and climbing wages led to fast food chains turning to innovative solutions to increase their profits. The future of fast food chains is changing, with restaurants testing automated technology such as robots that flip burgers and artificial intelligence software that can take drive-thru orders to make the process more efficient and profitable.
According to a forecast by restaurant consultancy Aaron Allen & Associates, up to 82% of restaurant positions could, to some extent, be replaced by robots. It is estimated that automation could save U.S. fast-food restaurants more than $12 billion in annual wages.
Thanks to its inelastic demand, the fast food sector serves as a hedge against inflation and recession. The need for affordable and convenient food is fuelling the industry’s growth and keeping it recession-proof. The global fast food market is projected to rise from $972.74 billion in 2021 to $1.47 trillion by 2028 growing at a CAGR of 6.1%.
With economists expecting a recession this year, it could be wise for investors to add fundamentally strong fast food stocks McDonald’s Corporation (MCD) and Restaurant Brands International Inc. (QSR) to their watchlist.
McDonald’s Corporation (MCD)
Globally renowned fast food franchise, MCD operates restaurants known for their hamburgers and cheeseburgers, chicken sandwiches and nuggets, wraps, and fries, among other items.
On December 15, 2022, MCD and all five members of the restaurant chain’s North American Logistics Council (NALC) signed agreements with Enel North America to purchase renewable energy and the associated renewable energy certificates (RECs) from Enel Green Power’s Blue Jay solar project. This should help MCD achieve its sustainability goals.
SVP and Chief Supply Chain Officer, North America, at MCD, Bob Stewart, said, “This deal is a unique example of how McDonald’s and its logistics partners are combining efforts to leverage their reach and scale to tackle supply chain emissions together. We are excited about our collective potential to help address climate change and drive continuous improvement.”
MCD’s revenues for the nine months ended September 30, 2022, increased marginally year-over-year to $17.26 billion. The company’s non-GAAP net income increased 5.3% year-over-year to $5.58 billion. Additionally, its non-GAAP EPS came in at $7.51, representing a 6.5% increase from the prior-year quarter.
Analysts expect MCD’s EPS for the fiscal year 2022 to increase 7.3% year-over-year to $9.95. Its revenue for the fiscal year 2023 is expected to increase 3.2% year-over-year to $23.75 billion.
It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 7.6% over the past nine months to close the last trading session at $269.29.
MCD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Restaurants industry, it is ranked #16 out of 46 stocks. It has an A grade for Quality and a B for Stability and Sentiment.
In total, we rate MCD on eight different levels. Beyond what we stated above, we have also given MCD grades for Growth, Value, and Momentum. Get all MCD ratings here.
Restaurant Brands International Inc. (QSR)
Headquartered in Toronto, Canada, QSR operates as a quick-service restaurant company worldwide. It operates through four segments: Tim Hortons; Burger King; Popeyes Louisiana Kitchen; and Firehouse Subs.
On December 21, 2022, QSR’s Popeyes brand subsidiary and Centras Group announced plans to develop and open dozens of Popeyes restaurants across Kazakhstan in the coming years. It is expected to be a gateway for Popeyes in Central Asia and open up new expansion opportunities for the brand.
For the fiscal third quarter (ended September 30, 2022), QSR’s total revenues increased 15.5% year-over-year to $1.73 billion. The company’s adjusted net income increased 23.5% year-over-year to $436 million. Moreover, its adjusted EBITDA increased 5.8% year-over-year to $642 million, while its adjusted EPS came in at $0.96, representing a 26.3% increase from the prior-year period.
QSR’s revenue for the quarter that ended December 31, 2022, is expected to increase 8.1% year-over-year to $1.67 billion. Its EPS for the quarter ending March 31, 2023, is expected to increase marginally year-over-year to $0.64.
It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 28.4% over the past six months to close the last trading session at $66.89.
QSR’s POWR Ratings reflect its solid prospects. The company has an overall rating of B, which equates to Buy in our proprietary rating system. It is ranked #8 in the same industry. In addition, it has a B grade for Stability, Sentiment, and Quality.
Click here to see the other ratings of QSR for Growth, Value, and Momentum.
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MCD shares were trading at $268.48 per share on Tuesday afternoon, down $0.81 (-0.30%). Year-to-date, MCD has gained 1.88%, versus a 4.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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