Which Fast-Food Restaurant Stock has the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

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Here’s your Cheat Sheet to how the top 5 fast-food stocks rank via earnings trends:

Yum! Brands, Inc. (NYSE:YUM): Current Price $65.30

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 11,300 10,840 11,340 12,630 13,630
Diluted EPS ($) 1.96 2.22 2.38 2.74 3.38

The operator of the KFC, Pizza Hut and Taco Bell restaurants certainly has its act together, and we see good annual growth on both the sales and profitability fronts.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 4,111 2,743 3,168 3,569 4,153
Diluted EPS ($) 0.75 0.96 0.69 1.00 0.72

Unfortunately, though quarterly sales are growing strongly, EPS has taken a dive in the latest quarter. We’d rather move on from this one…

McDonald’s Corp. (NYSE:MCD): Current Price $94.87

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 23,520 22,740 24,070 27,010 27,570
Diluted EPS ($) 3.76 4.11 4.58 5.27 5.36

Steady growth for sales and profits here are looking nice.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 6,823 6,547 6,916 7,152 6,952
Diluted EPS ($) 1.32 1.23 1.32 1.43 1.38

But the quarterly performance is disappointing, and in the latest quarter, both topline and EPS have taken a hit. Let’s look at the others…

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Chipotle Mexican Grill, Inc. (NYSE:CMG): Current Price $320.72

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 1,332 1,518 1,836 2,270 2,731
Diluted EPS ($) 2.36 3.95 5.64 6.76 8.75

We see hot growth on annual revenue and profits at this famous chain of Mexican restaurants.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 596.75 640.60 690.93 700.53 699.16
Diluted EPS ($) 1.81 1.97 2.56 2.27 1.95

On the other hand, quarterly profits have tapered off in the last two quarters. We’ll have to drop this from out list for now…

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Sonic Corp. (NASDAQ:SONC): Current Price $11.35

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 801.76 706.28 550.93 545.95 543.73
Diluted EPS ($) 0.97 0.81 0.34 0.31 0.60

Though revenue appears to have hit a plateau at this operator of drive-in restaurants, we see an uptick in the EPS number in 2012…

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Nov. 30, 2011 Feb. 29, 2012 May. 31, 2012 Aug. 31, 2012 Nov. 30, 2012
Revenue ($) in millions 128.28 115.08 149.43 150.94 126.01
Diluted EPS ($) 0.09 0.03 0.24 0.24 0.11

Things went awry in the last quarter, and both revenue and EPS took a ride south. We’ll pass…

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Wendy’s/Arby’s Group, Inc. (NYSE:WEN): Current Price $5.02

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 1,823 2,437 2,375 2,431 2,505
Diluted EPS ($) -2.584 0.01 -0.01 0.02 0.01

This quick-service hamburger company has rather flat numbers all around. Where’s the growth?

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 615.02 593.19 645.87 636.31 629.88
Diluted EPS ($) 0.03 -0.01 -0.07 0.06

It’s the same story on the quarterly figures, though the EPS thankfully turned into the black in the last quarter…

Conclusion

Of the 5 candidates here, only Wendy’s has grown its earnings quarter-over-quarter, though we are unimpressed with its overall growth. On the other hand McDonald’s and Chipotle Mexican Grill have far more consistent numbers, though their latest quarters are down. We’re afraid none of the companies reviewed pass ourĀ ”E-Squared” investment analysis.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!