2 Restaurant Stocks That Are Better Off Than McDonald's

McDonald's Corporation MCD has dominated the restaurant space news for quite some time, with positive past performances, its highly successful All-Day Breakfast campaign and expert sentiment that the stock is likely to continue its positive run.

However, McDonald's isn't the only strong performing restaurant stock, and analysts at Longbow Research have a few alternative favorites.

Longbow: McDonald's At Neutral

On Friday, Longbow initiated coverage of McDonald's at Neutral, with no available price target.

The rating was justified by the firm based upon uninspiring same-sales numbers and reduced customer excitement ex-All-Day-Breakfast. "We believe the shares deserve to trade above MCD's own historical multiples in light of the company's turnaround story underway […] Also, MCD's ongoing shift to a less capital intensive, higher franchised model should generate a more predictable earnings stream and accelerated free cash flow that warrant a higher multiple for the shares."

The analysts continued, countering, "However, we believe the company's current multiple accurately reflects MCD's improving fundamentals. Furthermore, we are concerned the recent comp lift provided by the company's All Day Breakfast launch could wane further in coming quarters based on our most recent channel checks."

Related Link: Why Is Stephens Still Overweight McDonald's?

Restaurant Brands Also At Neutral

Longbow also initiated coverage of Restaurant Brands International Inc QSR at Neutral, citing that analysts "like the story, but not the valuation."

"The shares of QSR certainly deserve to trade at a premium to the restaurant group average in light of the accelerating same-store sales growth, solid global new store growth profile and capital-light franchise model," the analysts began.

"However, we believe QSR's current valuation already reflects these positive attributes, particularly since the company will face challenging same-store sales growth comparisons at both Burger King and Tim Hortons at least in the short term.

Wendy's, Yum! At Buy

In contrast to the two Neutral initiations, Longbow extended Buy ratings on newly covered Yum! Brands, Inc. YUM and Wendys Co WEN.

The analysts surmised that Wendy's turnaround story had just began, and although the stock is performing above the company's past historical multiples, the analysts "believe the shares deserve to trade at a significant premium since we are confident Wendy's is in the early stages of a turnaround."

"Also, the company's ongoing shift to a less capital intensive, higher franchised model should generate a more predictable earnings stream and accelerated free cash flow that warrant a higher multiple for the shares," the analysts stated, "We believe using the out year for our aforementioned target price is warranted in light of significant positive changes expected to occur under WEN's turnaround and refranchising plans over the next nine months."

The EPS estimates for Wendy's came in at $0.06 for the first quarter of 2016, $0.37 for the full year and $0.43 for 2017. The target price was set at $13.00.

Regarding Yum!, Longbow initiated coverage at Buy with an attached $95.00 price target, citing "better days ahead."

"We view the pending breakup of YUM's China operations as a key positive for the company," the analyst elaborated. "Furthermore, while difficult to quantify, we believe YUM's choppy performance over the last 18–24 months took focus away from the company's remaining operations."

The analysts continued to justify their Buy thesis, "We believe YUM deserves to trade at a premium to the restaurant group average as well as the company's own historical averages in light of upside potential from its Taco Bell concept, potential for at least a modest recovery at Pizza Hut and the pending split off of YUM's China business."

Longbow has an EPS estimate of $0.83 for the first quarter of 2016, $3.56 for the full year and $4.08 for 2017.