Yum! Brands is bolstering its menu but remains exposed to China
Investing in Yum! Brands, Inc. (NYSE:YUM) is a bit tricky. The company owns a number of classic fast food chains, including Taco Bell, KFC and Pizza Hut. But when you buy Yum! Brands, Inc. (NYSE:YUM) shares, you’re really buying two companies in one.
The first company is its Western operations. That business has been going pretty well for quite some time. Taco Bell, in particular, has seen a dramatic resurgence following the release of the Doritos Locos taco. The company has also added a Cantina Bell menu featuring more upscale items designed to attract the Chipotle crowd.
The second company is Yum! Brands, Inc. (NYSE:YUM) China, and in particular, KFC in China. While KFC is a middle of the pack chain in North America, it remains the single largest fast food chain in the Middle Kingdom.
That’s been a source both of growth, and of headaches. Over the last five years, shares of Yum! Brands, Inc. (NYSE:YUM) are up better than 70%, with much of that coming from foreign growth. But more recently, China has been a drag on the stock, as scares related to Chicken quality and Avian flu have drove away customers.
Last week, Yum! Brands, Inc. (NYSE:YUM) shares bounced after the company posted better than expected earnings, but sales in China dropped by 20%. Going forward, China will continue to be a huge market for the company.
McDonald’s has traded to new highs as it adds menu items
Trading above $100, McDonald’s Corporation (NYSE:MCD) shares remain near an all-time high. The iconic fast food giant has seen its shares soar since the financial crisis, almost doubling since March 2009.
Some of those investors are likely interested in McDonald’s Corporation (NYSE:MCD) more as an alternative to fixed income than as a solid equity investment. The company currently yields near 3% and maintains an excellent credit rating. With central banks keeping interest rates near zero, McDonald’s Corporation (NYSE:MCD) stock is a better alternative to bank deposits.
Still, the company has been working to keep its core business humming along. After successfully adding new premium coffee drinks in recent years, McDonald’s Corporation (NYSE:MCD) has added three new menu items the company hopes will form the basis of its continued growth.
Chief among them is the McWrap, a customizable chicken wrap sandwich designed to appeal to young adults.
Burger King, fresh out of private equity control, has had a dramatic makeover
After being acquired by the private-equity firm 3G Partners, Burger King Worldwide Inc (NYSE:BKW) returned to the public markets last year. Since that time, shares are up a bit more than 25%.
Pershing Square was also involved in the deal, and the fund continues to own a significant stake. In a presentation from last April (titled Justice is Best Served Flame Broiled), Bill Ackman laid out the bull case for Burger King Worldwide Inc (NYSE:BKW).
Burger King’s stores have been partially remodeled, as the company has added digital menu boards and other aesthetically pleasing features. In terms of food, the chain’s menu has received almost a complete makeover.
In the past, true to its name, Burger King Worldwide Inc (NYSE:BKW) was focused around selling burgers. This tactic appealed mostly to males between the ages of 18 and 34. To broaden its consumer base, Burger King Worldwide Inc (NYSE:BKW) has added new items aimed at females and different age groups.
For example, as part of its Spring menu, Burger King features both vegetarian and turkey burgers — a rarity among fast food chains.
Burger King Worldwide Inc (NYSE:BKW) beat analyst expectations when it reported earnings Friday, and shares moved higher on the news. Perhaps a remodeled Burger King can retake its spot as the number two burger chain.
Panera Bread’s growth may be slowing
After being a great growth story in recent years, Panera Bread Co (NASDAQ:PNRA) shares dropped about 5% last week. That move was largely predicated on a poor earnings report that saw the company miss analyst expectations and give relatively weak guidance.
The company blamed winter storms for its results, noting on the earnings call that it was “very difficult to hold good operating disciplines when sales patterns swing wildly due to the winter storms.”
One of the biggest questions surrounding Panera’s future is its management. Co-CEO William Moreton is planning to step down, giving full control of the company back to founder Ron Shaich. On the recent earnings call, Panera Bread Co (NASDAQ:PNRA) was questioned a number of times about the management change, and it did its best to argue that the strength of the overall team was industry-leading.
Overall, Panera shares are up almost 300% in the last five years, and the company wants to keep growing. Management believes the best use of its cash is to continue to open new stores.
Chipotle has become a popular stock to hate
Like Panera, Chipotle has been a big grower in recent years. But that record growth has attracted a fair amount of critics.
David Einhorn said he was betting against Chipotle Mexican Grill, Inc. (NYSE:CMG) last October, arguing that Taco Bell’s push into higher-end Mexican food would crush the company. Likewise, Jeff Gundlach echoed Einhorn’s sentiments recently, stating that the concept of a gourmet burrito was an “oxymoron.”
Despite the criticism, Chipotle has been a solid performer in 2013, rallying over 20% year-to-date. The fast food chain posted solid earnings earlier in April, which pushed shares back above $360.
For its part, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s management believes that it isn’t just its burritos that make it successful. Rather, Chipotle believes it has stumbled onto a new model for fast food entirely, one that can be applied to other types of cuisine. The company is currently testing an Asian spin-off in select markets.
Investing in fast food
Most investors probably don’t think of fast food when they think of exciting stocks. Yet, the fast food industry as a whole is currently undergoing revolutionary shifts. That kind of shake up can serve as a launchpad for opportunity — both from the long and the short side. When looking for trades then, investors ought to consider fast food.
The article The 5 Most Interesting Fast Food Stocks originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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