Fast-food aficionados love to talk up their favorite establishments, and a lively debate can be enjoyed with the burger-and-fries crowd over the offerings from McDonald’s Corp. (MCD) and Wendy’s Co. (WEN). And these companies can also generate a lively discussion on their respective stock performances.
Companies like MCD and WEN initially found a new wave of consumer appreciation when the COVID-19 pandemic forced the shutdown of restaurants – both establishments had already been veterans in the drive-thru takeout environment that took on a new glow after indoor dining was paused for months.
Beyond that, the companies are very different entities. McDonald’s is the larger of the two, with approximately 39,100 eateries and a wide international footprint, compared to Wendy’s 6,800 locations and a mostly U.S.-focused market. Most of the locations of each fast-food company are franchised: Wendy’s only has about 6,400 locations franchised and McDonald’s has about 35,000.
Wendy’s franchise operations took a hit last July when NPC International, which owns nearly 400 Wendy’s restaurants – filed for Chapter 11 bankruptcy protection in July. Earlier this week, a bankruptcy judge approved NPC’s $801 million sale of roughly 1,200 Pizza Hut franchises and half of its Wendy’s stores to Flynn Restaurant Group, with Wendy’s the other half of its former franchise operations, which it plans to turn over to another group of franchisees.
Both MCD and WEN, along with other fast-food restaurant chains, were targeted in an effort last week to raise the minimum wage in their restaurants to $15 per hour. President Biden made the increase of the federal minimum wage to $15 one of his domestic policy priorities – neither MCD nor WEN have publicly commented on the Biden proposal.
Which of these restaurant stocks is the better pick for your portfolio?
During Q3, WEN reported net income of $39.8 million, a 13.7% decline from the $46.1 million from one year earlier. Total revenues were $452.2 million, a 3.3% increase from the $437.9 million of one year earlier. WEN’s diluted earnings per share of $0.17 was a three-cent dip from the $0.20 generated in the previous year.
In the Q3 earnings report, President and CEO Todd A. Penegor talked up the Q4 potential from the company’s efforts to increase awareness of its breakfast menu and chicken sandwich line. He also acknowledged the company’s plans for overseas expansion were moving slower than hoped due to “some high potential emerging markets where the recovery period has taken a bit longer,” but he added the company will “continue to make progress toward our plan to expand into Europe and remain on track to open restaurants in the U.K. in the first half of 2021.”
Over at MCD, Q3 net income was $1.76 billion, up 10% from the $1.6 billion from Q3 2019, while revenue $5.41 billion, down 2% year-over-year from $5.5 billion. MCD’s diluted earnings per share of $2.35 was an 11% increase from one year earlier.
Kevin Ozan, executive vice president and chief financial officer, was cautiously optimistic about the company’s performance in the Q3 earnings call, noting how MDC began Q3 with “nearly all of our global restaurants open for business, and they remain open today.” But he also observed the resurgence in the pandemic and “numerous instances of government restrictions on operating hours, limited dining capacity in most countries and, in some cases, mandated dining room closures” as having an impact in near-future operations.
Recent Financial Performance
WEN is trading at $21.24, much closer to its 52-week high of $24.91 than its 52-week low of $6.82. It has a Trade Grade of “C,”, a Buy & Hold Grade of “B,” a Peer Grade of “D” and an Industry Rank of “B.” It places 33 out of 49 stocks in the Restaurants category and has an overall POWR Rating of “C” (for neutral).
MCD is trading at $213.53, closer to its 52-week high of $231.91 and far from its 52-week low of $124.23. It carries a Trade Grade of “B,” a Buy & Hold Grade of “B,” a Peer Grade of “D” and an Industry Rank of “B.” It places 18 out of 49 stocks in the Restaurants category and has an overall POWR Rating of “B” (for buy).
While we certainly wouldn’t turn down a burgers-and-fries lunch from either establishment, it appears that MCD stock is the tastier offering for investors today. This is not to say that WEN has a good chance of taking on new strength as the year progresses, but for now MCD is the stronger choice of the two.
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MCD shares were trading at $212.38 per share on Friday morning, down $1.15 (-0.54%). Year-to-date, MCD has declined -1.03%, versus a 2.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Phil Hall
Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series. He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...
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