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McDonald's had a Great Quarter, but is Chipotle a Better Buy?

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McDonald's (NYSE: MCD) reported earnings Wednesday morning that beat analyst expectations. The stock is currently up 0.4 percent in morning trading.

The company reported earnings of $1.38 per share on $6.95 billion in revenues.

Analysts expected earnings per share to come in at $1.33 per share with fourth quarter sales of $6.89 billion. This is down from the previous quarter figures coming in at $1.33 per share and $7.15 billion in sales.

Global comp sales were up 0.1 percent versus analyst expectations of a decline of 0.3 percent. This is welcome news for the company. Analysts had largely written off the quarter as falling victim to a tepid and penny-pinching consumer that saved money as the fiscal cliff loomed.

According to the company’s press release, CEO Don Thompson said, “We have a brand advantage in convenience, menu variety and value, a resilient business model, and the experience and alignment throughout the McDonald's System to navigate the current environment. For the near-term we expect top and bottom-line growth to remain pressured, with January's global comparable sales expected to be negative."

McDonald's remains downbeat on near term economic conditions and cautious about growth in the coming quarters. While it believes that January same store sales will be negative, on a more upbeat note, the release noted that it plans to open 1,500-1,600 new restaurants while reinvesting in existing stores noting that even in a slow environment, now is an opportune time to invest in new stores.

McDonald's has gained more than 10 percent in value since November despite challenging economic conditions, but is this “mature” fast food stock a better pick than a name like Chipotle (NYSE: CMG)?

Sure, fast food aficionados will say that Chipotle is a different class of restaurant. Fast casual versus fast food, but regardless of the distinction, which is growing faster?

Chipotle began as a fast food darling. Its rapid multiple expansion indicated that investor excitement was through the roof and as the chart indicates, outsized. Chipotle was priced for perfection and once it failed to meet expectations, the stock plunged.

After reaching a peak of $438, more than 55 times earnings, the big miss came in July. Since that time, the stock is down more than 27 percent and now has a forward P/E of 28 times earnings. This puts the company more in line with the industry average of fast food restaurant peers like Panera (NASDAQ: PNRA) and Starbucks (NASDAQ: SBUX)


McDonald's also had a tough 2012, but saw a more respectable loss of 8 percent. Its forward P/E of 16 is lower than the industry average and pays a healthy 3.3 percent dividend.

Latest Ratings for MCD

DateFirmActionFromTo
Oct 2014Morgan StanleyDowngradesOverweightEqual-weight
Sep 2014CitigroupMaintainsNeutral
Sep 2014Bank of AmericaReiteratesBuy

View More Analyst Ratings for MCD
View the Latest Analyst Ratings

Posted-In: Don ThompsonAnalyst Color Earnings News Management Events Global Analyst Ratings Best of Benzinga

 

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