No matter how you measure it, McDonald's (NYSE:MCD) continues to be the flagship of the fleet of fast food restaurants. The golden arches continued its earnings growth through the recession and it is expected to finish the year well, despite challenges in the economy and heavy competition in the fast food space. The company should end 2009 with $3.96 earnings per share, an 8% increase over last year's EPS; it is projected to earn $4.41 next year. With a long-term growth rate projected at 9.4%, selling at a multiple of around 15, McDonald's is still strong. (To learn more about EPS, read Types Of EPS and Assess Shareholder Wealth With EPS.)

IN PICTURES: World's Greatest Investors

Others Trying To Move Up
Burger King (NYSE:BKC), quietly residing in the number two slot of fast food giants, sells for a slightly lower P/E ratio of around 12 times earnings. In addition, it continues to turn in decent profits with opportunities to solidify its position behind McDonald's. Wendy's/Arby's (NYSE:WEN), recently created when Triarc, which owned Arby's, bought Wendy's, has found business to be slightly better at Wendy's than at Arby's. But both have had problems with declining sales. Wendy's has been rumored to have an interest in purchasing donut chain Krispy Kreme (NYSE:KKD), but it might make more sense for Wendy's/Arby's to tighten up its own ship first.

Because the fast food space remains crowded, there are stragglers in terms of business performance. Jack In The Box (Nasdaq:JACK) had a mixed year with discouraging operational earnings. The company, in the process of re-franchising its stores, put out guidance that suggests sales will be off further in 2010.

Things To Watch For
Long-term investors will want to gauge not only the earnings trajectory, P/E ratios and other fundamental measures, but also the all-important business prospects for any company going forward. When you look at the major fast food restaurants, it's easy to see that the recession has presented a mixed bag, with giants McDonald's and Burger King performing nicely, but some of the others like Wendy's/Arby's and Jack In The Box not faring so well. Investors also should remember that the balance sheets tell some tales. Yum! Brands (NYSE:YUM), with its Pizza Hut and Taco Bell restaurants, sports a healthy EPS of $2.21 and has traded at around 15 times earnings. However, it also has a long-term debt-to-equity ratio of 3.6, which is less than ideal. McDonald's debt-to-equity ratio, for example, fares better - at about 0.81. Yet, Yum! Brands also generates $1.15 billion in cash flow, so its debt load of nearly $3.3 billion is not out of bounds. Thus, it pays to note underlying financials, even for strong companies. Yum! Brands is still projected to produce strong earnings growth going forward.

A Look Ahead
After digesting the year many of the fast food companies have had, it is easy to see that some of the stocks, such as McDonald's, are ending the year at virtually the same stock price that they began. (McDonald's stock dipped in March, but came back in the subsequent market rally.) But these stocks are not necessarily considered fast-growers, unless some catalyst makes a stock or the group of stocks take off. With Wendy's/Arby's and Jack In The Box still working through problems into 2010, and with the economy still soft, the business of fast food doesn't look as though it will be particularly robust. Still, some of these stocks - at the right price (McDonald's) - can be very profitable long-term holdings.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis article, risk free!

Related Articles
  1. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  2. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  6. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  7. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  8. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Investing

    What’s the Difference Between Duration & Maturity?

    We look at the meaning of two terms that often get confused, duration and maturity, to set the record straight.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  5. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  6. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>

You May Also Like

Trading Center