Is Starbucks Corporation (SBUX) a Buy After Impressive Third-Quarter Earnings?

What makes me excited about Dunkin’ Brands is its 100% franchise business model. Consequently, it does not own a lot of assets and incurs much less maintenance capital than the company-owned store model. The asset-light characteristic allows the company to have more financial and operating flexibility. Looking forward, Dunkin’ Brands expects to grow its revenue by 6%-8% for the full year 2013, with 10%-12% growth in adjusted operating income. Full year 2013 EPS might be in the range of $1.50-$1.53 with free cash flow of around $125 million to $135 million. At the current trading price, Dunkin’ Brands offers investors a dividend yield of 1.80%.

McDonald’s Corporation (NYSE:MCD) is the cheapest valued among the three. At around $98 per share, McDonald’s is worth $98.30 billion on the market. The market values McDonald’s at 11.33 times its trailing EBITDA. In contrast to the growing operating performance of Starbucks, McDonald’s comparable sales growth was much lower, at only 1%. The comparable sales declined in Europe and several emerging markets including Asia/Pacific, Middle, and Africa. Despite the sluggish operating performance and outlook, McDonald’s has kept expanding its footprint in fast growing markets.

Recently, McDonald’s decided to enter Vietnam with its well-known developmental licensee. Vietnam is considered one of the most favorable markets in the world for global consumer goods corporations, with several attractive demographic attributes including rapidly rising middle-class income and a high percentage of young population. Vietnam expects to have its first McDonald’s restaurant at the beginning of 2014.

Among the three quick service restaurant chains, McDonald’s seems to be the most attractive for income investors with its highest dividend yield of 3.10% and a decent payout ratio of 55%.

My Foolish take

Starbucks has been always a favorite long-term pick for patient investors due to its impressive growing operating performance and international expansion opportunities. I also like Dunkin’ Brands with its 100% business franchise model, which does not require a lot of maintenance capital expenditure. However, Starbucks and Dunkin’ Brands have quite high valuations at their current prices. I would rather wait for future price corrections before initiating long positions in these two businesses.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and Starbucks. The Motley Fool owns shares of McDonald’s and Starbucks. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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