Though burger chain companies are currently struggling to operate at full capacity amid a labor shortage, the rapid rate of vaccinations and rising consumer discretionary spending make the industry’s prospects bright.
Rising food prices due to supply chain disruptions could also raise pricing concerns. Federal Reserve chair Jerome Powell said that global supply chain issues could remain through 2022. However, the increasing number of people visiting restaurants and pent-up demand should help burger chain companies generate rising revenues ahead of the holiday season.
So, we think it could be wise to scoop up the shares of burger chain stock McDonald’s Corporation (MCD) because of its solid financials. However, Shake Shack Inc. (SHAK) and Jack in the Box Inc. (JACK) do not appear to be well-positioned to capitalize on the industry’s growth. Because their near-term prospects look bleak, it could be wise to avoid these stocks.
Stock to Buy:
McDonald’s Corporation (MCD)
MCD operates and franchises McDonald’s restaurants in the USA and internationally. Its restaurants offer various food products and beverages and a breakfast menu, operating through around 39,198 restaurants globally. MCD is headquartered in Oak Brook, Ill.
On October 20, Closed Loop Partners announced an additional $10 million commitment from the NextGen consortium’s founding partners, Starbucks and McDonald’s. Marion Gross, Senior Vice President and Chief Supply Chain Officer at McDonald’s North America, said, “Knowing that industry-wide collaboration is essential to creating lasting, scalable impact, we invite others to join us in this important work to advance solutions and eliminate packaging waste.”
MCD’s total revenues increased 14.5% year-over-year to $6.20 billion in its fiscal third quarter, ended September 30, 2021. Its net income came in at $2.15 billion, up 22% year-over-year, while its EPS increased 21.7% year-over-year to $2.86.
Analysts expect MCD’s revenue and EPS to increase 20.1% and 52.4%, respectively, year-over-year to $23.07 billion and $9.22 in its fiscal year 2021. In addition, it has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 18.7% in price to close yesterday’s trading session at $245.50.
MCD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
MCD has an A grade for Sentiment and Quality, and a B grade for Momentum and Stability. Within the Restaurants industry, it is ranked #14 out of 44 stocks. Click here to see the additional POWR Ratings for Growth and Value for MCD.
Stocks to Avoid:
Shake Shack Inc. (SHAK)
SHAK owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally. It currently runs approximately 311 Shacks, including 183 domestic company-operated Shacks, 22 domestic licensed Shacks, and 106 international licensed Shacks. SHAK is based in New York City.
On August 6, 2021, John Zolidis, president of Quo Vadis Capital, said “There is a mismatch between the strength of the Shake Shack brand and the company’s results.” Indeed, certain analysts are unimpressed with the company’s financials.
SHAK’s total liabilities came in at $988.74 million for the period ended June 30, 2021, versus $710.86 million for the period ended December 31, 2020. Its other assets were $11.63 million compared to $12.3 million for the same period. Furthermore, its total expenses came in at $184.15 million for the second quarter ended June 30, 2021, up 58.9% year-over-year.
SHAK’s EPS is expected to remain negative in its fiscal year 2021. And its EPS is expected to decline at a 11.5% rate per annum for the next five years. Over the past nine months, the stock has lost 39.9% in price to close yesterday’s trading session at $69.77.
SHAK’s POWR Ratings reflect its poor prospects. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. In addition, it has a D grade for Value and Sentiment.
Jack in the Box Inc. (JACK)
JACK, which is based in San Diego, Calif., operates and franchises Jack in the Box quick-service restaurants. It operates approximately 2,241 Jack in the Box quick-service restaurants, primarily in the Western and Southern United States, including one in Guam.
On September 10, 2021, JACK announced a collaboration with ParTech, Inc. PAR. However, the success of this partnership remains uncertain, given the company’s weak financials.
JACK’s cash came in at $84.22 million for the period ended July 4, 2021, compared to $199.66 million for the period ended September 27, 2020. Its total current assets were $189.21 million compared to $335.58 million for the same period. Furthermore, its accounts payable came in at $34.56 million, compared to $31.11 million, also for the same period.
Its EPS is expected to fall 1% in the next quarter. Over the past six months, the stock has lost 16.5% in price to close yesterday’s trading session at $98.89.
JACK’s POWR Ratings are consistent with this bleak outlook. The stock has a D rating for Growth and Sentiment in our proprietary rating system.
Want More Great Investing Ideas?
MCD shares were trading at $245.50 per share on Friday morning, down $0.00 (0.00%). Year-to-date, MCD has gained 16.38%, versus a 23.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|MCD||Get Rating||Get Rating||Get Rating|
|SHAK||Get Rating||Get Rating||Get Rating|
|JACK||Get Rating||Get Rating||Get Rating|