Fast Food In 2016: Who Came Out On Top And Who's Best Positioned For The Future?

In the race to the top of the fast food chain, McDonald’s Corporation (NYSE: MCD) investors haven’t seemed to be lovin’ it. Meanwhile, Wendys Co (NASDAQ: WEN) fans appeared to gain faith that it’s really “better here,” and buyers of Restaurant Brands International Inc (NYSE: QSR) cashed in on Burger King’s promise to “have it your way.”

Throughout the year, all but McDonald’s outperformed the SPDR S&P 500 ETF Trust (NYSE: SPY), which leisurely climbed 9.53 percent. McDonald’s shares rose only 3 percent, while Wendy’s spiked 25.5 percent and Restaurant Brands popped 27.6 percent.

However, McDonald’s outpaced its competitors right out of the gates. Restaurant Brands and Wendy’s both plunged at the start of the year, with the former seeing a relative turnaround in March and the latter picking up in September.

What The Results Say

Fourth-quarter earnings merited a different distribution of accolades. Wendy’s fell to the back of the pack, while its competitors hastened forward.

The company reported mixed fourth-quarter earnings Thursday, with EPS falling short of estimates by 11 percent and revenue surpassing expectations by 0.5 percent.

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One week earlier, Restaurant Brands reported 4.8-percent EPS and 1-percent revenue beats. In January, McDonald’s beat fourth-quarter estimates for both EPS and revenue by a respective 2 percent and 0.7 percent.

Patty Flippers Warm Up For Next Heat

Ahead of its Thursday investor day, Wendy’s raised its 2017 EPS guidance from $0.45 to $0.47 and announced a 2020 goal of $12 billion in global restaurant sales. Realization of the latter goal would mean a $2 billion boost, or a 6.27 percent compound annual growth rate (CAGR). The figure appears in line with an anticipated 6.8 percent CAGR for sales in the global restaurant industry predicted by Research and Markets.

Meanwhile, Restaurant Brands offered 2017 revenue guidance between $4.135 billion and $4.15 billion, which partially reflects an expansion of the Tim Hortons brand into Mexico. In January, UBS upgraded Restaurant Brands to Buy with a $55 price target, and following its fourth-quarter report, Stephens maintains an Overweight rating with the a $52 target.

McDonald’s will announce annual guidance at its March 1 investor day. Leading up to the report, the company announced that it will be refranchising and working to reduce expenses over the next year to increase investor value.

Having released quarterly earnings in January, McDonald’s, alone, has garnered a wealth of reactions from analysts.

Beneath The Golden Arches

Baird’s David Tarantino wrote that the company appears “well positioned to build on the turnaround progress evident in 2016 and to deliver healthy financial performance in 2017.”

The firm maintains an Outperform rating with a price target of $130, while Stephens maintains an overweight rating and target of $135.

“Given our belief that both investor sentiment and conviction remain low, we believe it is prudent to highlight McDonald's Corporation as having what we view as the most attractive setup for a large cap restaurant,” Stephens analyst Will Slabaugh wrote in a note.

Slabaugh said the acceleration of global comps testifies to the strength and opportunity of the brand, and he anticipates a boost in U.S. comps in the coming quarters.

BTIG’s Peter Saleh maintains a Buy rating with a $137 price target, and he foresaw sales growth inspired by menu changes.

“We expect a more significant investment in technology and restaurant upgrades will be the focus in the U.S. over the next several years, replicating the strategy used in Canada and Australia, in an effort to improve guest count trends,” Saleh wrote.