McDonald’s vs. Wingstop: Which Fast Food Stock is a Better Choice?

McDonald’s Corporation (MCD – Get Rating), which is headquartered in Oak Brook, Illinois, and Wingstop Inc. (WING – Get Rating) in Dallas, Tex., are two prominent players in the fast-food restaurant industry. MCD operates and franchises McDonald’s restaurants that serve mainly locally relevant fast food, soft drinks, and other beverages worldwide. As of December 31, 2020, the company operated 39,198 restaurants. WING, together with its subsidiaries, franchises, and operates restaurants under the Wingstop brand name. Its restaurants offer classic wings, boneless wings, and tenders cooked-to-order and hand-sauced-and-tossed in various flavors. As of December 26, 2020, the company had 1,506 franchised restaurants and 32 company-owned restaurants.

Digitalization of operations and contactless delivery services helped fast-food restaurants maintain their sales amid the COVID-19 pandemic. But these restaurants have been witnessing increasing foot traffic lately, owing to the strong vaccination drive, a decline in COVID-19 cases, and the easing of travel restrictions. The global quick-service restaurant market is expected to grow at 5.1% CAGR to $815.60 billion by 2026. So, both MCD and WING are expected to benefit.

But while WING’s shares have lost 6.8% in price over the past month, MCD surged marginally. MCD is a clear winner with 16.1% gains versus WING’s 15.9% returns in terms of their past nine months’ performance. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On August 4, 2021, MCD and eBay Inc. (EBAY) announced agreements with Lightsource BP, a leading solar developer, to purchase power from the Ventress Solar project, Louisiana’s largest solar project. The 345-megawatt Solar project will help MCD and EBAY meet their sustainability goals and advance their commitment to climate action while expanding Lightsource bp’s footprint across the Southeast.

On May 25, 2021, WING made a minority investment in the U.K. business, which is operated by its U.K. franchisee, Lemon Pepper Holdings Ltd. (LPH). The company believes this expansion will strengthen the development pipeline in that market and develop expanding market reach in the U.K.

Recent Financial Results

MCD’s total revenues for its fiscal second quarter, ended June 30, 2021, increased 56.5% year-over-year to $5.89 billion. The company’s operating income came in at $2.69 billion, up 180% from the prior-year period. MCD’s net income was $2.22 billion for the quarter, representing a 358.7% rise from the year-ago period. Its non-GAAP EPS increased 259.1% year-over-year to $2.37.

For the fiscal second quarter, ended June 26, 2021, WING’s revenue increased 11.9% year-over-year to $74 million. The company’s operating income came in at $18.90 million, representing a 3.2% decline from the year-ago period. While its adjusted net income increased 13.1% year-over-year to $11.31 million, its adjusted EPS increased 11.8% year-over-year to $0.38. As of June 26, 2021, the company had $43.50 million in cash and cash equivalents.

Past and Expected Financial Performance

MCD’s EPS and net income have grown at CAGRs of 10.5% and 8.1%, respectively, over the past three years. The company’s total assets have grown at a 16.6% CAGR over the past three years.

Analysts expect MCD’s EPS to increase 50.2% year-over-year in the current year and 8.9% next year. Its revenue is expected to grow 19.6% in the current year and 6% next year. The stock’s EPS is expected to grow at a 20.5% rate per annum over the next five years.

In comparison, WING’s EPS and net income have increased at CAGRs of 2.3% and 3%, respectively, over the past three years. The company’s total assets have grown at a 23.6% CAGR over the past three years.

Analysts expect WING’s EPS to grow 93.6% year-over-year in the current year and 29.1% next year. Its revenue is expected to increase 19.2% year-over-year in the current year and 18.2% next year. Analysts expect the…

 

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