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Morningstar Analyst: Pick Yum! Brands Over McDonald's

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Morningstar Analyst: Pick Yum! Brands Over McDonald's

McDonald's Corporation (NYSE: MCD) has seen its stock gain around 25 percent over the past year. On the other hand, Yum! Brands, Inc. (NYSE: YUM) has seen its stock fall around 10 percent over the same period.

So why is R.J. Hottovy of Morningstar throwing his support behind Yum Brands over McDonald's?

Speaking as a guest on CNBC's "Squawk Box" segment, Hottovy was quick to point out McDonald's has already had a great run, especially in the U.S. market. However, the question investors are asking now is if the company's pace of growth, specifically its same-store sales growth — which read 6.2 percent in the most recent quarter, is sustainable over the longer term.

Related Link: Why Yum! Should Stick To The "Original Plan" In China

McDonald's Isn't 'Bad'

Hottovy added that while he expects McDonald's to continue growing, it will do so at a slower space. Specifically, he is projecting the company's same-store sales growth to moderate to the 3 percent level.

"I think the market should be baking in a decelereation of top-line trends for the rest of the year," he suggested.

The analyst suggested current McDonald's shareholders should hold on to their stock but not add to already existing positions. On the other hand, buying shares of Yum Brands is an attractive move for investors.

Hottovy pointed out that McDonald's stock has gained over the last year following a turnaround in its core assets, capital allocation and a commitment to re-franchising. Conveniently enough, these are all key areas of focus for Yum Brands, given a turnaround in its own core assets in China and a capital allocation play as well as a commitment to being a more franchise business model.

 

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