Three Alternatives to McDonald's

McDonald's MCD surprised investors Wednesday morning with its announcement that its same-store sales were weak in July. The Dow, the S&P 500 and the Nasdaq all looked like they might close lower, but only the Nasdaq did. All because same-store sales at the golden arches fell 0.1 percent in the United States, 0.6 percent in Europe and 1.5 percent in the Asia/Pacific, Middle East and Africa. The company cited the sluggish global economy for these results. So is it time to dump McDonald's in favor of some alternative? Hardly. Here is a look at three restaurant stocks that are doing well. The share prices of AFC Enterprises AFCE, Cracker Barrel Old Country Store CBRL and Papa John's PZZA are all more than 25 percent higher year to date, leading the industry. All three have had growth in EPS and sales over the past five years and they are forecast to post EPS growth over the next five years, and their stocks have outperformed McDonald's over the past six months. AFC Enterprises The share price has risen more than 30 percent in the past six months. This Atlanta-based operator of the Popeye's Chicken & Biscuits chain has a market capitalization of more than $540 million. The price-to-earnings (P/E) ratio is higher than the industry average, but so is the operating margin. The long-term earnings per share (EPS) growth forecast is about 12 percent and the return on equity is a whopping 163 percent. Still, analysts seem to think the stock has some room to run, as the consensus price target is more than 11 percent higher than the current share price. Over the past six months, the stock has outperformed competitor Yum! Brands YUM, which operates the KFC chain and it has outperformed the broader markets. Cracker Barrel Old Country Store Cracker Barrel reached a new 52-week high Wednesday, the same day the company announced the retirement of the chairman. The purveyor of comfort food and nostalgia has a market cap of about $1.4 billion. Its P/E ratio is less than the industry average. The long-term EPS growth forecast is more than 10 percent and the return on equity is almost 29 percent and the dividend yield is about 2.5 percent. Five out of eight analysts polled by Thomson First Call recommend buying the stock. The consensus price target is about 7 percent higher than the current share price. The stock has outperformed Denny's DENN and the S&P 500 over the past six months. Papa John's The share price of this pizza delivery and carryout operator has pulled back about 7 percent from a recent multiyear high, but it is still about 39 percent higher year to date. The company is headquartered in Louisville, Ky., and has a $1.2 billion market cap. Its long-term EPS growth forecast is about 12 percent, and the return on equity of more than 27 percent. The forward earnings multiple is less than the industry average P/E ratio. Short interest is about 3.5 percent of the float. But note that the consensus price target on Papa John's is now less than the current share price. Over the past six months, the stock has outperformed rival Domino's Pizza DPZ and the broader markets.