Lucrative Deals Behind Unhealthy Eating

Sharmistha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A lot of serious research has been done on potential links between fast food and health risks, but has that stopped the fast food industry from expanding? Not a chance.

Fast food has infiltrated every nook and cranny of American society. Americans now spend more money on fast food than on higher education, personal computers, computer software, or new cars. Today, about half of the money used to buy food is spent at restaurants - mainly at fast food restaurants. Fast food is now so commonplace that it has acquired an air of inevitability, as though it were somehow unavoidable, a fact of modern life.

The US maintained its position as one of the leading fast food nations even during the tough post-recession days. In fact, the economic meltdown is benefiting the fast food industry. People are now becoming more price-conscious, particularly about the food products they purchase, and are shifting to fast food joints from their traditional habits of eating out at more expensive restaurants.  The industry has exhibited a continuous growth rate over the last 3 years, and the value of the fast food industry is forecast to continue to grow by approximately 4% each year.

The success of fast food can be measured by improved earnings and international growth, and the fast food industry as a whole saw its stock values handily beat the overall market in 2011. McDonalds (NYSE: MCD) probably has the strongest brand name when it comes to fast food chains. It has an impressive earnings and dividend growth history. The company says its key revenue figure, same-store sales, returned to growth in August after revealing a lackluster performance in July amid the rough economy.

Sales at McDonald's restaurants rose 3.7% globally in August. With a market cap of $92.52B and a P/E ratio of 17.09 the company has continued to attract traffic more successfully than many fast-food peers. McDonalds declared a quarterly dividend of $0.77 per share, or $3.08 annualized. This is a 10% increase from the prior dividend of $0.70, and investors are already benefitting from the company's sustainable dividend yield.

The last 5-year growth rate for McDonald’s was 13%, and from a debt point of view, McDonalds faces no problems. That the company’s innovations, coupled with an aggressive marketing strategy, will push Mcdonald’s to stable revenue growth is no news as its growth history has been stupendous.

Another stock which merits a close look is and Yum! Brands (NYSE: YUM), which has had explosive growth. The stock of this company is on a continuous upswing, and has won its outperform rating with a $82.00 price target. Yum! Brands has a 52-week low of $47.15 and a 52-week high of $74.44. The company has a market cap of $30.58 billion and a price-to-earnings ratio of 20.78. It reported $0.67 earnings per share (EPS) for the quarter, and revenue was up 12.5% on a year-over-year basis. Analysts expect that Yum! Brands will post $3.26 EPS for the current fiscal year.

The growth rate of the current quarter's earnings compared to the same quarter a year ago is positive at a rate of 6.15%. With a steady income and a 5-year moving average dividend growth rate at 17.5%, the stock is an interesting combination of income and growth.

Jack in the Box (NASDAQ: JACK) is a relatively smaller fry. The company recently hit a 52-week high of $24.99, and reported positive news regarding its second-quarter earnings. It met analyst expectations with revenue of $506.6 million and earnings per share of $0.27.With a comparatively small cap of $1.3B and a P/E ratio of 18.87, several analysts rate it a strong buy as it recently posted third-quarter 2012 adjusted earnings of $0.37 cents per share. Jack in the Box’s comparable store sales (comps) increased 2.8%, and for the fourth quarter of 2012, the company expects same-store sales to increase in the range of 2%–3%.

Jack in the Box operates and franchises its fast-food restaurants primarily in the Western region of the United States. It is viewed as a recession-proof business, benefiting from tighter purse strings than its higher-end restaurant industry peers. Its tiny market cap is dwarfed by the major bulls McDonald’s and Yum!, but a lot of analysts and investors have favored the lower-margin, higher-volume approach of this company.

In conclusion, it may be observed that unhealthy fast food can be a healthy stock option. Sales boosted growth and stability of these company’s stocks have made them some of the most reliable names in the market.


SharmisthaB has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend 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.

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