McDonald’s Corporation (MCD), Yum! Brands, Inc. (YUM): Happy Meals Are Not Enough to Make Investors Smile

Keeping faith in past trends, that the business revives in China post a decline due to health concerns, the company is not cutting its growth prospects in the country. However, the rebound will take a few months’ time, and until then, we can expect low margins and profitability for the company.

Look into Burger King

In order to better compete with McDonald’s, Burger King Worldwide Inc (NYSE:BKW) has started relying on franchisees to increase its network globally, as it will reduce the company’s overhead costs significantly. It is also escalating its marketing campaign and presenting reasonable food options for its customers.

Valuation standpoint

McDonald’s is currently trading at a P/E ratio of 18 times while Burger King Worldwide Inc (NYSE:BKW) and Yum! Brands, Inc. (NYSE:YUM) are currently trading at 49 and 23.5 times their earnings, respectively, making them comparatively expensive. However, going forward, Burger King Worldwide Inc (NYSE:BKW) offers maximum growth as it carries a PEG ratio of 1.5 times compared to Yum! Brands, Inc. (NYSE:YUM) 2.09 and McDonald’s 2.04 times.

As the economy continues to remain weak and competitive, I believe McDonald’s will not be offering much value, as it is already trading near its 52 week high. Since it still is a well-run company with a bright long-term view, any fall in price should be seen as a buying opportunity. As for Yum! Brands, Inc. (NYSE:YUM) its performance is immensely skewed towards China, while McDonald’s Corporation (NYSE:MCD) has a more diversified revenue generation capacity. Thus, if Chinese consumers don’t go back to consuming as before, the company will continue to under perform.

The article Happy Meals Are Not Enough to Make Investors Smile originally appeared on Fool.com and is written by tarun bachhawat.

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

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.