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Fast Food Stocks: Analyst's Winning Plays
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CNBC.com Writer
Fast foods’ oldest and most famous names are facing off against more upscale chains that are slashing prices to hold onto the tight-fisted consumers. So which stocks are the better buy? Jeffrey Bernstein, senior restaurant analyst at Barclays Capital, shared his insights.
“Quick service more recently has been under pressure, but McDonald’s [MCD
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] has been the best to weather that storm,” Bernstein told CNBC.
He said McDonald’s is facing increasing competition from the likes of casual fast-food players such as Chipotle [CMG
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] and Panera Bread [PNRA
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].
And the casual sit-down chains like Applebee’s [APPB
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] Chili’s (owned by Brinker International [EAT
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]) that are "dipping down" to try to catch the low-end consumers.
“Recently, we’ve seen broader quick-service, excluding McDonald’s, decelerating in terms of sales trends,” he explained.
“Unemployment is having a major negative impact on the low-end consumer and after several years of underperforming, the more sit-down discretionary restaurants are finally seeing some early signs of sales improvement.”
“They’ve cut costs pretty meaningfully, so they’re starting to drive outsized earnings growth in which quick services has been struggling as of late,” he continued.
While McDonald’s has dominance in the U.S., Bernstein said Yum Brands [YUM
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] has been the fast food leader in China.
“They have several thousand units there and it’s their fastest growing market,” he said. “McDonald’s is a distant second in that market, but they don’t need to fight with one another—there’s ample room for both of them to grow as fast as they’d like.”
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Disclosures (re text and accompanying video):
Barclay’s has received non-investment banking related compensation from CAKE, DPZ and MCD within the past 12 months.
Barclay’s owns shares of PFCB and has investment banking clients who own shares of DPZ, WEN, YUM, MCD and DRI.
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