Zacks Investment Ideas feature highlights: Red Robin, McDonald's, Jack in The Box, Burger King and Wendy's

Zacks

 
For Immediate Release
Chicago, IL- September 27, 2013 – Today, Zacks Investment Ideas feature highlights Features: Red Robin (RRGB-Free Report), McDonald’s (MCD-Free Report), Jack in The Box (JACK-Free Report), Burger King (BKW-Free Report) and Wendy’s (WEN-Free Report).

The Best Burger for Your Portfolio

We all have our opinions on who has the tastiest hamburger, but which burger joint is the best investment for your portfolio?  Let’s take a look at some well-known burger makers to see which is may fill up your portfolio with profits.

General trends:

Before getting started, let’s examine the macro trend in sales at eating and drinking establishments.  The first graphic displays retail sales at food service and drinking places as reported by the Commerce Department.  Sales have lost momentum, but are still positive. Year ago comparisons will not get easy until about January 2014. Sequentially, the level of sales is below the peak seen in April 2013, and confirms a softening trend in sales.  

The recent reduction in gasoline prices may help bolster sales, but is somewhat offset by the reduction in refinance activity.  According to the Department of Energy, the average retail price of gasoline was $3.49/gallon compared to $3.82/gallon a year ago in the last week of measure.  Wage growth has also turned higher, which could be a benefit to demand at the margin.  

On a brighter tone, the Restaurant Performance index put out by the National Restaurant Association is above the 100.0 level suggesting on-going expansion in the industry.  The index is off the recent high, but still in positive territory.  However, there was a reduction in the outlook for sales volume over the next six months.  37% saw higher sales in the next six months compared to 46% in July, while 9% saw lower sales compared to 11% in July.
PEG Ratio:

The PEG ratio is the price to earnings to growth rate ratio.  This measure will help us understand the premium or discount to earnings growth investors are willing to pay to own their restaurant name.  Notice that Red Robin (RRGB-Free Report) and McDonald’s (MCD-Free Report) have the highest PEG ratios, while Jack in The Box (JACK-Free Report) and Burger King (BKW-Free Report) have the lowest PEG ratios.   However, relative to their median value, BKW was trading at the lowest premium, while RRGB was priced at the highest premium.  Given that BKW has not been public for a long time, the median values for BKW needs to be taken cautiously.  RRGB looks expensive both relative to his historical median and compared to the group.  Looking at the cheapest measure based on the PEG ratio is less easy. Although JACK has the lowest PEG, it is trading at a premium to its median value.  Wendy’s (WEN-Free Report) has a lower PEG ratio than MCD, but was trading at a higher premium to its median value.

Forward 12 Month PE ratio:

Based on forward 12 month PE ratio, MCD is trading at the lowest valuation in the group and was at a slight discount to its median.  It stands out as cheapest both on an absolute and relative basis.  WEN has the highest forward PE ratio and is carrying a relatively large premium to its median.   

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