Despite high prices, food demand remains robust due to inelasticity. According to a recent survey-based report out of Purdue University's Center for Food Demand Analysis and Sustainability, in December, household food expenditures increased by 15% from January 2022.
In addition, according to Jayson Lusk’s survey, consumers’ spending on food away from home, which is in restaurants, increased over the past three months, with total food spending up about 19% year-over-year.
Moreover, the global fast-food sector should witness steady growth amid rising consumer spending power, rapid globalization, industrialization, and urbanization. The Fast-Food market is expected to grow at a CAGR of 4.6% until 2028.
Given the backdrop, investors should consider buying fundamentally sound fast food stocks McDonald’s Corporation (MCD) and Restaurant Brands International Inc. (QSR) in 2023. Moreover, fast-food stocks prove great defensive options amid recessionary fears.
McDonald’s Corporation (MCD)
MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.), International Operated Markets (IOM), and International Developmental Licensed Markets & Corporate (IDL).
On January 31, 2023, MCD’s President and Chief Executive Officer, Chris Kempczinski, said, “While we expect short-term inflationary pressures to continue in 2023, we remain highly confident in Accelerating the Arches, which now includes a greater emphasis on new restaurant openings.”
The recently announced Accelerating the Organization initiative will complement this strategy to enable the McDonald's System to be faster, more innovative, and more efficient.
MCD’s gross profit margin of 56.97% is 61.3% higher than the 35.33% industry average, while its levered FCF margin of 24.88% is subsequently higher than the industry average of 1.36%.
MCD has paid dividends for 21 consecutive years. Over the last three years, MCD’s dividend payouts have grown at a 6.2% CAGR. Also, its four-year average dividend yield is 2.26%, and its current dividend translates to a 2.28% yield.
MCD’s revenues from franchised restaurants increased 7.5% year-over-year to $3.65 billion for the fourth quarter that ended December 31, 2022. Its operating income grew 7.7% from the year-ago value to $2.58 billion. Moreover, the company’s net income and EPS increased 16.1% and 18.8% year-over-year to $1.90 billion and $2.59, respectively.
Street expects MCD’s revenue to increase 5% year-over-year to $24.35 billion in 2023. Its EPS is estimated to grow 4.8% year-over-year to $10.58 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past nine months, the stock has gained 8.8% to close the last trading session at $266.61.
MCD has an overall B rating, which equates to a Buy in our POWR Ratings systems. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #9 out of 45 stocks. Click here to see the additional POWR Ratings for Growth, Value, and Momentum for MCD.
Restaurant Brands International Inc. (QSR)
Headquartered in Toronto, Canada, QSR operates as a quick-service restaurant company in Canada and internationally. It operates through four segments: Tim Hortons (TH), Burger King (BK), Popeyes Louisiana Kitchen (PLK), and Firehouse Subs (FHS).
QSR has paid dividends for seven consecutive years. Over the last three years, QSR’s dividend payouts have grown at a 2.6% CAGR. Also, its four-year average dividend yield is 3.41%, and its current dividend translates to a 3.30% yield.
QSR’s gross profit margin of 39.94% is 13.1% higher than the 35.33% industry average, while its levered FCF margin of 18.52% is substantially higher than the industry average of 1.36%.
QSR’s total revenues came in at $1.69 billion for the fourth quarter that ended December 31, 2022, up 9.2% year-over-year. Its net income increased 28.2% year-over-year to $336 million. Also, its EPS came in at $0.74, up 29.8% year-over-year.
Analysts expect QSR’s revenue to increase 3.8% year-over-year to $6.73 billion in 2022. Its EPS is estimated to grow 5.7% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained 28.7% to close the last trading session at $66.61.
It’s no surprise that QSR has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Stability, Sentiment, and Quality. It is ranked #8 in the same industry.
Beyond what is stated above, we’ve also rated QSR for Stability, Momentum, and Sentiment. Get all QSR ratings here.
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MCD shares were trading at $265.67 per share on Wednesday morning, down $0.94 (-0.35%). Year-to-date, MCD has gained 0.81%, versus a 7.62% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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