Burger King Feasting On The 'Fourth Meal' (BKC)

By Glenn Curtis | September 05, 2007 AAA

All those late night snackers mean big dollars for Burger King (NYSE:BKC). Sales and earnings are up for the fourth quarter, thanks in large part to the company's expanded store hours - satisfying our desire for the so called "fourth meal".

Promising Results
Although the stock is down about 10% over the past couple months, there are several signs that the company is on the way up.

Take a look at the company's fiscal Q4 results and you'll see that things are looking up. During the recent quarter, the company's sales increased 11% to $590 million, and its earnings (adjusted for one-time and extraordinary expenses) came in at 29 cents per share - a full two cents ahead of Wall Street estimates.

Moreover, the company's worldwide same store sales were up a healthy 4.4%. And in the U.S. and Canada, where everyone is concerned about whether the consumer will continue to spend money on casual dining, same store numbers were up a healthy 4.8%.

The company said the reason for the healthy numbers was the "fourth meal" revenue.

More Tasty News
Of course, there were some other attractive features about the quarter worth mentioning as well. For example:

• During the period worldwide average restaurant sales (ARS) grew 8% to $311,000.

• The company's restaurant margin in the U.S. and Canada increased 30 basis points during the quarter and by 120 basis points for the full year.

• Its board of directors authorized a $100 million repurchase program.

Next, let's take a look at the valuation. Burger King currently trades at about 18.5-times this year's consensus estimate of $1.27 per share. It's also expected to grow its bottom line at a roughly 16% pace - to $1.47 per share - in the coming year and at a 15.1% pace in each of the next five years.

That's pretty cheap, given that McDonald's (NYSE:MCD) trades at roughly 17.5-times this year's consensus estimate, but it is only expected to grow its earnings at about a 9% in the coming year to $3.02 per share and at a roughly 8.8% per-year for the next five years.

The Downside To This Story
Investors need to remember that although Burger King is currently performing quite well, it is up against plenty of competition. Remember, Wendy's (NYSE:WEN) continues its foray into the breakfast market, and Starbucks (Nasdaq:SBUX) has been aggressively pushing its muffins, bagels, warm sandwiches and other breakfast fare.

Also, McDonald's has been drawing in plenty of foot traffic with new menu introductions, such as iced coffee. Another concern I have is that billionaire Nelson Peltz, and his management company Triarc, are reportedly doing their due diligence on Wendy's.

This is scary, at least to me, because if Wendy's is taken private there's a chance that it could become much more competitive in certain markets. Remember, as a private company it could probably save millions on filing fees, news releases and accounting fees, and theoretically plunge that money back into advertising.

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