Analyst Roundup: Fast-Food Service Stocks

2014 was an eventful year for the fast-food service industry. Which restaurant chains came out ahead, and which ones trailed behind?

McDonald’s

McDonald's Corporation MCD has not seen as much success on Wall Street this year as it has in the past. The fast-food chain has faced a few hurdles, such as an expired meat scandal in China and trouble appealing to younger customers. In November, the company posted a 4.6 percent decrease in sales in stores open for more than one year.

However, McDonald’s has come up with a few ideas to turn things around, including streamlining its menu so it is less overwhelming to customers and to decrease preparation time, lowering the number of ingredients in its products to make them more appealing to the health-conscious consumer, and introducing the “Create Your Taste” program, which will be implemented in 2,000 American locations in 2015.

In addition, there has been speculation that activist investor Bill Ackman will be getting involved with the fast-food chain.

McDonald's has a one-year high of $103.78 and a one-year low of $87.62.

McDonald’s was last rated by Edward Jones & Co analyst Jack Russo on December 17, who gave the stock a Buy rating. Russo pointed out that while “There are some costs that could be taken out” of McDonald’s spending, “the real key is going to be driving same-store sales.”

In regards to Bill Ackman potentially taking a stake of McDonald’s, Russo thinks his comments will spark speculation that he is.

In the past year, Russo has successfully made 6 ratings out of 7 total, earning an 86 percent success rate recommending stocks and a +8.5 percent average return per recommendation.

El Pollo Loco

El Pollo LoCo Holdings Inc LOCO came in hot this year when it released its IPO this past July. Shares of the Mexican chicken fast-food chain quickly escalated as financial experts compared the company to Chipotle.

With that said, El Pollo Loco recently received a new five-year loan facility worth about $200 million which will help lower the company’s borrowing cost by roughly 2.5-3 percentage points. This will ultimately lead to a $7 million interest expense savings.

El Pollo LoCo has a one-year high of $41.70 and a one-year low of $18.48.

El Pollo Loco was last rated on December 3 by Morgan Stanley analyst John Glass, who upgraded the stock from Under Weight to Equal Weight.

He noted: “While we have always been proponents of [El Pollo Loco] as a strong regional brand with sound expansion plans, valuation kept us cautious as the post-IPO valuation made shares the most expensive even of its highest-growth peers.”

In the past year, Glass has successfully made 15 ratings out of 22 total, earning a 68 percent success rate recommending stocks and a +16.1 percent average return per recommendation.

On average, the top analyst consensus for El Pollo Loco on TipRanks is Hold.

Chipotle

Chipotle Mexican Grill, Inc. CMG stole the hearts -- and stomachs -- of Americans this year as they began to change the landscape of the fast-food industry. The assembly-line production style of the restaurants caters to the consumers' desire for customization. Chipotle adamantly displays transparent food sourcing, gaining the trust of consumers in more than 1,600 locations.

Chipotle last released quarterly earnings in October, beating analyst expectations. In the third quarter of 2014, the chain saw a 56 percent year-over-year increase in earnings per share on a diluted basis and a 31 percent year-over year increase in revenue.

Chipotle has a one-year high of $697.93 and a one-year low of $472.41.

Chipotle was last rated by analyst Karen Holthouse of Goldman Sachs on December 8. Holthouse resumed coverage with a Buy rating, noting that “Chipotle is one of few concepts well positioned for the growing ‘real food’ movement.” Holthouse also believes that the chain is somewhat safe from fluctuating food prices because the company has pricing power.

Holthouse has an 83 percent overall success rate recommending stocks with a +9.4 percent average return per recommendation. She has rated Chipotle five times since April of 2012 with an average return of +16.8 percent per Chipotle recommendation.

The current top analyst consensus for Chipotle on TipRanks is Hold.

Buffalo Wild Wings

Buffalo Wild Wings BWLD benefited from the World Cup this summer, when the chain saw strong sales over the month-long tournament. Shares were up in June, peaking at over $167 a share. However, Buffalo Wild Wings struggled to maintain momentum throughout the year as shares dipped down to $122 in October.

The restaurant was adversely affected by the rise in food costs this year, resulting in a price increase reflected on the menu. However, it still reported an 18.3 percent year-over-year revenue increase in its third quarter earnings in October.

The report beat estimates for earnings per share, which increased 20 percent on a year-over-year basis. The report also revealed ambitious plans to open 50 company-owned locations and 40 franchised locations in 2015.

Buffalo Wild Wings has a one-year low of $122.15 and a one-year high of $183.73.

On December 11, analyst Brian Bittner of Oppenheimer maintained a Perform rating on Buffalo Wild Wings. Bittner noted: “Management appears confident in its’15 EPS target of +18 percent.”

In the long term, he said, “BWLD will attempt to sustain its growth by selecting one of the new tiny concepts as its next 1,000+ unit brand.” Bittner concluded that he will have more confidence in the stock “in ’15 earnings visibility if wing prices don’t inflect higher in next 2 months.”

Bittner has a 79 percent overall success rate recommending stocks with a +13.6 percent average return per recommendation.

The top analyst consensus for Buffalo Wild Wings on TipRanks is Moderate Buy.