Which Restaurant Stocks Have 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’).

Stocks with improving earnings metrics are worthy of your extra attention. Click here to discover our CHEAT SHEET stock picks now!

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

McDonald’s Corp. (NYSE:MCD): Current Price $93.72

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

We see steady growth in revenue and EPS numbers at McDonald’s.

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

However, quarterly revenue and EPS numbers seem to have hit a plateau. Let’s hunt for more promising candidates…

Brinker International Inc. (NYSE:EAT): Current Price $33.09

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 3,861 3,276 2,858 2,761 2,821
Diluted EPS ($) 0.49 0.77 1.34 1.53 1.87

Brinker has pulled off the impossible: good growth in EPS with a relentless fall in revenues.

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 ($) in millions 681.90 742.04 728.37 683.51 689.76
Diluted EPS ($) 0.44 0.56 0.59 0.36 0.50

But we’re not impressed with the company’s quarterly performance. Revenue and EPS are all over the place, and we value consistency. This one does not make the grade…

Yum! Brands, Inc. (NYSE:YUM): Current Price $64.63

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 10,440 11,300 10,840 11,340 12,630
Diluted EPS ($) 1.68 1.96 2.22 2.38 2.74

We’re impressed with the growth in annual revenue and EPS at Yum, and can’t wait to check out the quarterly grid.

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

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 3,274 4,111 2,743 3,168 3,569
Diluted EPS ($) 0.80 0.75 0.96 0.69 1.00

Apart from the sales blip in March 2012, and the EPS fall in June 2012, we can still be hopeful, thanks to decent performance in September 2012. We’ll keep our eye on YUM…

Darden Restaurants, Inc. (NYSE:DRI): Current Price $45.87

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 6,626 7,218 7,113 7,500 7,999
Diluted EPS ($) 2.60 2.65 2.84 3.39 3.57

We like Darden’s delivery on annual revenue and EPS growth these past four years.

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 ($) in millions 1,832 2,160 2,066 2,035 1,960
Diluted EPS ($) 0.40 1.25 1.14 0.85 0.26

Unfortunately, the company has been under-performing the past few quarters, as both revenue and EPS have seemingly hit the skids…

Chipotle Mexican Grill, Inc. (NYSE:CMG): Current Price $303.48

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 1,086 1,332 1,518 1,836 2,270
Diluted EPS ($) 2.13 2.36 3.95 5.64 6.76

There’s strength in these annual numbers from Chipotle Mexican Grill. We see rock solid revenue growth and excellent EPS growth as well.

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

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 591.85 596.75 640.60 690.93 700.53
Diluted EPS ($) 1.90 1.81 1.97 2.56 2.27

In terms of the quarterly results, revenue growth was maintained, but we can still discern signs of some pressure on EPS growth.

Conclusion

In ourĀ “E-Squared” investment analysis, we choose Chipotle Mexican Grill over McDonald’s because of its better EPS growth on an annual basis. Both companies did, however, report a decline in EPS in their latest quarter…and we don’t like that action. YUM is the only company with a quarter-over-quarter earnings beat, so add that to your watch list.

“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!