Amid skyrocketing inflation and recession concerns, fast food stocks, which tend to be great defensive recoveries during recessions, are expected to do well for the foreseeable future. In this scenario, investors can add quality fast-food stocks McDonald’s (MCD) and Chipotle Mexican Grill (CMG) to their 2023 watch list. Read on….
Fast foods are popular because of their relative convenience. Despite economic volatilities, they have become the top choice for the majority of the American population. Given the growing demand and defensive nature, let’s explore why McDonald’s Corporation fast food inventories (MCD) It is Chipotle Mexican Grill, Inc. (CMG) could be solid additions to the watch list this year.
Robust job hiring and resilient spending despite high prices have increased the chances of progressive interest rate hikes by the Federal Reserve, resulting in experts anticipating a recession in the coming months.
Fast foods, often heralded as “recession-proof,” have become important to price-conscious shoppers amid rising supermarket and restaurant prices. On average, Americans spend more than $1,200 on fast food annually, $100 monthly, $13.15 weekly, or $3.39 daily. Additionally, an average American family reportedly spends 10% of their daily incomeup to about $110 billion annually.
Furthermore, due to its focus on speed, affordability and convenience, the global fast food market is expected to grow above a 4.6% CAGR. It is predicted to reach over $998 billion by 2028.
Since fast food sector fares better than the rest of the industry during economic uncertainty and recessions, fast food inventories tend to be large defensive recoveries amid recession concerns. So quality fast food stocks MCD and CMG can be added to your watchlist for 2023.
McDonald’s Corporation (MCD)
MCD operates and franchises its restaurants in the US and internationally. The company’s segments include the United States (US); International Traded Markets (IOM); and International Development (IDL) Licensed and Corporate Markets.
MCD President and CEO Chris Kempczinski said, “While we expect short-term inflationary pressures to continue into 2023, we remain very confident in Accelerating the Arches, which now includes a greater emphasis on opening new restaurants. The Organization’s announced Accelerating initiative will complement this strategy to enable the McDonald’s System to be faster, more innovative and more efficient.”
On February 2, MCD declared a quarterly dividend of $1.52 per share of common stock, payable to shareholders on March 15, 2023. This reflects the ability of the company’s shareholders to return.
MCD’s 12-month gross profit margin of 56.97% is 61.4% higher than the industry average of 35.30%. Your last 12 months EBITDA margin of 52.69% is 367.3% higher than the industry average of 11.28%.
MCD revenue from franchised restaurants increased 7.5% year-over-year to $3.65 billion for the fourth quarter ended December 31, 2022. operating profit grew 7.7% year-over-year to $2.58 billion. In addition, the company’s net income and earnings per share increased 16.1% and 18.8% year-over-year to $1.90 billion and $2.59, respectively.
Street expects MCD’s EPS to grow 4.4% year-over-year to $2.66 in the fiscal second quarter ended June 2023. Additionally, its revenue for the same quarter is expected to increase 6.5% year-over-year to $6.09 billion. It beat EPS estimates in each of the next four quarters.
Last year, the stock gained 6.1%, closing the last session at US$ 264.78. In addition, the stock has gained 3% over the past six months.
MCD’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. POWR ratings evaluate stocks by 118 different factors, each with its own weighting.
MCD scores an A for Quality and a B for Stability and Feel. Within the B rating restaurants industry, ranks 10th out of 45 stocks.
In addition to the POWR ratings stated above, we also rate MCD for Growth, Value and Momentum. Click here to get all MCD ratings.
Chipotle Mexican Grill, Inc. (CMG)
CMG owns and operates Chipotle Mexican Grill locations, offering a diverse menu of burritos, burrito bowls, quesadillas, tacos and salads. As of December 31, 2022, CMG has nearly 3,200 restaurants in the United States, Canada, United Kingdom, France and Germany. It is the only restaurant company of its size that owns and operates all of its restaurants.
On February 27, 2023, CMG announced the introduction of the new Fajita Quesadilla on March 2, 2023, as a digital-only menu item on the Chipotle app and Chipotle.com. For the first time, guests could get their favorite Chipotle Quesadillas with Monterey Jack cheese, their protein of choice and fresh fajita vegetables through Chipotle’s digital ordering channels. This can increase the company’s revenue.
On February 15th, CMG has announced the opening of its new restaurant called Farmesa on Third Street Promenade in Santa Monica, California.
Nate Lawton, Vice President of New Ventures for Chipotle, said, “Launching Farmesa in the Kitchen United Mix dining hall in Santa Monica and partnering with third-party partners for pick-up or delivery will allow us to reach large numbers of consumers, learn quickly, and evolve our concept and menu so we can meet our goals before expanding.”
CMG’s 12-month net profit margin of 10.41% is 117.1% higher than the industry average of 4.78%. Its 12-month ROCE of 38.54% is 224.6% higher than the industry average of 11.88%.
In the fourth fiscal quarter (ended December 31, 2022), CMG’s total revenue increased 11.2% year-over-year to $2.18 billion, and its operating income grew 87.2% over the value of the previous year, to US$ 296.33 million. Additionally, the company’s adjusted net income grew 45.5% year-over-year to $231.39 million, while adjusted earnings per share were $8.29, up 48.6% year-over-year. .
The consensus revenue estimate of $2.33 billion for the fiscal first quarter ended March 2023 reflects 15.5% growth from the year-ago quarter. Likewise, the EPS consensus estimate of $8.87 for the same quarter indicates a 55.6% year-over-year improvement. Additionally, CMG beat its consensus EPS in all three of the next four quarters.
The stock gained 1.22% for the day to close the last trading session at $1,494.75.
CMG’s strong fundamentals are reflected in its POWR ratings. The stock has an overall rating of B, which is equivalent to a Buy under our proprietary rating system.
CMG also has a B grade in Quality and Growth. Within the same industry, it ranks 14th.
In addition to what we stated above, we also provide CMG ratings for Stability, Sentiment, Value, and Momentum. Get all CMG ranks here.
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MCD shares were unchanged in premarket trading on Tuesday. Year-to-date, the MCD gained 0.47%, versus a 4.00% gain for the benchmark S&P 500 during the same period.
About the Author: Sristi Suman Jayaswal
The dynamics of the stock market piqued Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. With a master’s degree in Accounting and Finance, Sristi hopes to deepen her expertise in investment research and better mentor investors.
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