Two Fast Food Stocks to Sell into Strength

At first glance, today was a good day for the fast food industry. McDonald’s Corp. (MCD) and Yum! Brands Inc. (YUM), which is behind Taco Bell, KFC and Pizza Hut, both rallied after reporting first-quarter results. However, if you dig into the details of these two reports, you can see that there are still a lot of problems in the fast food industry.

McDonald’s announced that net income fell 32.3% year-over-year to $811.5 million, or $0.84 per share. Adjusted earnings, which exclude strategic charges and foreign currency headwinds, were $1.01 per share. Analysts were looking for $1.06 EPS, so McDonald’s posted a 5% earnings miss.

Over the same period, total revenues fell 11% to $5.96 billion; this was in line with the consensus estimate. Breaking it down, global comparable sales fell 2.4% while U.S. comparable sales fell 2.6%. McDonald’s is struggling with declining guest traffic in all of its major segments.

Interestingly, MCD shares still rose following the report. McDonald’s management alluded to a turnaround plan that will be revealed in early May. However, with analysts still projecting an 11% drop in sales and a 10% earnings decline for the second quarter, I wouldn’t hold my breath on MCD. I consider MCD a D-rated Sell.

And while the results with Yum Brands were a little better—it posted an 11% earnings surprise and projected 10% earnings growth in 2015—I wouldn’t necessarily by into the hype. YUM shares broke through a new high today, but that doesn’t change the fact that the stock barely scrapes by with a C-rating.

The next few weeks are full of market-moving earnings announcements, so be sure to check back in here for the latest earnings news.

Sincerely,

Louis Navellier

Louis Navellier

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