Grease is the Word
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So, the Dow was down as much as 239 points on Monday because of Spain and Grease...yes, grease. McDonald’s Corp. (NYSE: MCD) reported a rare miss before the open, its first in 10 quarters. (CNBC said the first miss in 7 ½ years). How uncomfortable it must be for new CEO Don Thompson to disappoint on his first earnings release. He cited a strong dollar, commodity costs and Europe (quelle surprise!) as reasons. Net income was down to $1.32 a share, down $0.03 from 2011, and analysts expected $1.38.
McDonald’s traded down almost 3% to close at $88.94, and now carries a yield of 3.10% and a 16.61 P/E. The 90.33 billion market cap company was the best Dow performer of 2011 and had hit a high of $102.22 earlier this year. McDonald’s still has believers, as Janney Capital Markets reiterated its buy after the call; TV pundits cited $85 as support and would be “lovin’ it” at that price or lower.
The Grease Index
All the burger stocks traded down in sympathy with McDonald’s, and its miss only exacerbated the slide in fast casual and quick serve restaurants after Chipotle Mexican Grill Inc (NYSE: CMG) disappointed on July 20. My fictional Grease Index, the GRIX, of McDonald’s, Wendy’s, Burger King, Sonic and Jack in the Box looked like wilted lettuce by the end of the day but the worst was Jack in the Box Inc. (NASDAQ: JACK). It dropped even more than Micky D’s, no doubt on its exposure to both Mexican food, with its Qdoba Mexican Grill restaurant, and its burgers at Jack in the Box. Supersize the ouch here. It fell 3.80%. See more about both here.
Jack in the Box operates and franchises 2,200 restaurants. It missed last ER’s expectations by $0.04. But it is still up 14.88% over the last year. The company is a landlord receiving rent and royalties from its franchisees as well as income from company run restaurants. It has an institutional hold of 101.5%, and 8.50% of shares are held short. The P/E is 16.18 which is still lower than McDonald’s and Chipotle Mexican Grill’s 37.18 P/E. It reports again on August 8.
The burger chain that fell the least was newly IPO’d Burger King Worldwide Inc (NYSE: BKW). Burger King was taken private three years ago and now they’re public again, as of June 20. Burger King was only down .59% at the close on an ugly day for burgers. The market cap is 1.58 million, and they operate 12,511 restaurants of which 11,217 are franchises. Burger King is in 81 countries, and with all that foreign exposure one would think it would be down more, but no--the King reigned on Monday. New shareholders will be very interested in the company’s first public earnings release on August 8.
With the highest P/E of all of these at 85.09, The Wendy’s Company (NASDAQ: WEN) fell 2.38% to a $4.51 close. It has a 1.70% yield. Wendy’s owns and operates 1,417 locations and franchises another 5,177 in the US, US territories, and 27 foreign countries. This one has the most insider conviction with 28.02% of shares held by insiders. Institutions hold 49.60%, and shares held short are 4.80% of the float. Wendy’s reports on August 9.
Sonic Corp. (NASDAQ: SONC) fared little better than Jack in the Box and fell 3.23% to close at $9.90. Full disclosure here, this is my kid’s favorite burger place and she will go 20 miles out of our way to eat at a Sonic drive-in. To her dismay, they had been scarce where we live, but the company has been making a big push north throughout the US. It operates and franchises 3,500 drive-ins; 87% of those are franchises. They reported on June 20 and were recently downgraded to neutral by PiperJaffray. Institutions hold 87.60%, insiders hold 6.12%, and the short share of the float is 8.40%. The company is also upping its advertising on the web and TV to push its retro charm and new menu.
Who Still Has the Beef?
Of all the burger joints, which one will satisfy your portfolio’s cravings for alpha? McDonald’s has support in the mid-80’s but will likely not repeat its 2011 showing as the best Dow stock, since its major improvements and the McCafe introduction are in the rearview mirror. That being said, it is the most recognizable brand in the world and has that yummy yield. Burger King has yet to report its first earnings as a public company so that one is a shot in the dark; on the plus side, it did get rid of the freaky King ad campaign. Wendy’s has the highest percentage of shares held by insiders. As for Jack in the Box, it won’t pop until investors can forget the sting of Chipotle and McDonald’s . Sonic is considered fairly valued here.
What to do? Best case might be to stay on the sidelines until some of the smaller names report and see if McDonald’s can redeem itself with improving same store sales.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's. Motley Fool newsletter services recommend Burger King Worldwide, Chipotle Mexican Grill, Jack in the Box, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.