The growing demand for convenience is largely fueled by fast-paced lifestyles and increasing urbanization, leading consumers to seek quick and easy meal solutions. Also, technological advancements such as digital ordering systems and efficient delivery services are driving growth in the fast-food industry.
Given the industry’s growth prospects, investors could consider quality fast-food stocks, such as Yum! Brands, Inc. (YUM), Restaurant Brands International Inc. (QSR), and McDonald's Corporation (MCD) for consistent returns.
The fast-food market is steadily growing due to the rising demand for convenience foods, on-the-go snacks, ready meals, and cold cuts. Millennials' busy lifestyles and the worldwide increase in working populations have driven fast food consumption. This trend is expected to support the global growth of the fast food industry, growing at a CAGR of 6.1% by 2028.
Additionally, the 2024 State of the Restaurant Industry report from the National Restaurant Association indicates that restaurant operators hold cautious optimism for the upcoming year. The industry is projected to surpass $1.1 trillion in sales, setting a new record.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Restaurants stocks, beginning with the third choice.
Stock #3: Yum! Brands, Inc. (YUM)
YUM develops, operates, and franchises quick-service restaurants worldwide. The company operates through the KFC Division, the Taco Bell Division, the Pizza Hut Division, and the Habit Burger Grill Division segments.
The company pays $2.68 annually as a dividend, which translates to a yield of 2.11% on the prevailing price level. Its four-year average dividend yield is 1.77%. The company has raised its dividend payouts at a CAGR of 9.54% and 10.33% over the past three and five years, respectively.
YUM’s trailing-12-month asset turnover ratio of 1.17x is 19% higher than the 0.99x industry average. Likewise, the stock’s trailing-12-month CAPEX/Sales of 3.87% is 27.8% higher than the 3.03% industry average.
YUM’s total revenues were reported at $1.60 billion for the fiscal first quarter that ended March 31, 2024. Its net income increased 4.7% year-over-year to $314 million. Its EPS grew 4.8% year-over-year to $1.10.
Street expects YUM’s revenue to increase 7% year-over-year to $1.80 billion in the fiscal second quarter (ended June 2024). Its EPS is expected to be $1.33 for the same quarter.
The stock has gained 5.7% over the past nine months to close the last trading session at $127.13.
YUM’s POWR Ratings reflect its promising outlook. The stock has a B grade in Quality. It is ranked #26 out of 41 stocks in the Restaurants industry. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Beyond what is stated above, we’ve also rated YUM for Growth, Momentum, Value, Stability, and Sentiment. Get all YUM ratings here.
Stock #2: Restaurant Brands International Inc. (QSR)
Headquartered in Toronto, Canada, QSR operates as a quick-service restaurant company in Canada, the United States, and internationally. It operates through four segments: Tim Hortons (TH); Burger King (BK); Popeyes Louisiana Kitchen (PLK); and Firehouse Subs (FHS).
On July 1, 2024, QSR announced two transactions in China, the acquisition of Popeyes China, and the co-investment with Cartesian Capital into the business of TH International Limited (THCH). The two transactions reflect QSR's confidence in China, one of the largest QSR markets globally, and its commitment to drive growth in the market.
The company pays $2.32 annually, which translates to a yield of 3.38% on the prevailing price level. Its four-year average dividend yield is 3.38%. The company has raised its dividend payouts at a CAGR of 2.48% and 3.53% over the past three and five years, respectively.
QSR’s trailing-12-month gross profit margin of 39.77% is 8.7% higher than the industry average of 35.77%. Also, its trailing-12-month EBIT margin of 31.24% is 297.2% higher than the industry average of 7.86%.
QSR’s total revenues for the first quarter ended March 31, 2024, increased 3.1% year-over-year to $48.03 million. As of March 31, 2024, the company’s total liabilities stood at $361.04 million, and its total assets stood at $282.46 million.
Analysts expect QSR’s revenue for the second quarter ended June 2024 to increase 18.6% year-over-year to $2.11 billion. Its EPS is expected to grow marginally year-over-year to $0.86 for the same quarter. Moreover, the company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of QSR have gained 1.9% over the past nine months to close the last trading session at $68.57.
QSR’s sound fundamentals are reflected in its POWR Ratings. QSR has a B grade for Stability and Quality. It is ranked #18 in the same industry.
In addition to the POWR Ratings highlighted above, one can access QSR’s ratings for Growth, Momentum, Value, and Sentiment here.
Stock #1: McDonald's Corporation (MCD)
MCD operates and franchises restaurants under the McDonald’s brand internationally. The company offers food and beverages, like hamburgers, fries, sundaes, soft drinks, coffee, other beverages, and a full or limited breakfast. It owns and operates through conventional franchises, developmental licenses, or affiliate structures.
On July 25, 2024, MCD declared a quarterly cash dividend of $1.67 per share of common stock payable on September 17, 2024. The company pays $6.68 annually, which translates to a yield of 2.66% on the prevailing price level. Its four-year average dividend yield is 2.20%.
In terms of the trailing-12-month net income margin, MCD’s 33.36% is 585.1% higher than the 4.87% industry average. Likewise, its 53.60% trailing-12-month EBITDA margin is 372.4% higher than the industry average of 11.35%.
MCD’s revenues for the first quarter that ended March 31, 2024, increased 4.6% year-over-year to $6.17 billion. Its operating income rose 8.1% from the year-ago value to $2.74 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $1.96 billion and $2.70, up 1.1% and 2.7% from the prior year’s quarter, respectively.
Street expects MCD’s revenue for the quarter ended June 30, 2024, to increase 2% year-over-year to $6.63 billion. The company’s EPS for the same quarter is expected to be $3.07. Moreover, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
MCD’s shares have plunged 2.3% over the past month to close the last trading session at $251.46.
MCD has a B grade for Stability and Quality. Within the same industry, it is ranked #15. To see the additional grades of MCD for Value, Growth, Momentum, and Sentiment, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
MCD shares were trading at $251.86 per share on Friday afternoon, up $0.40 (+0.16%). Year-to-date, MCD has declined -14.02%, versus a 15.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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