by Robert Martin | October 28, 2013 11:00 am
Burger King Worldwide (BKW) might be the second largest fast-food hamburger chain in the world in terms of locations, but it’s been showing top dog McDonald’s (MCD) that size isn’t everything.
MCD stock has been a laggard so far in 2013, and fell even further after posting soft third-quarter sales in its recent McDonald’s earnings report.
Burger King, on the other hand, reported solid third-quarter earnings this morning — and BKW stock investors liked what they saw.
Let’s take a closer look at what’s keeping shares of BKW chugging higher.
Burger King earnings for the last three months beat expectations. BKW posted adjusted diluted earnings of 23 cents per share — two pennies better than the Street hoped for and 32% higher than in the year-ago period.
BKW has now beat or met expectations for five consecutive quarters.
Revenue suffered a large decline for BKW, but that was due to the refranchising of 519 company-owned restaurants. The resulting $275 million in sales for Burger King translated to a 40% year-over-year drop, but still managed to beat Wall Street’s forecast of $265 million.
Oh, and excluding refranchising and foreign exchange, revenue at BKW rose 8%. That’s around four times more than sales grew at MCD.
That’s not to say Burger King earnings were flawless. Soft consumer spending in the states did weigh on domestic sales, along with growing competition. Wendy’s (WEN), for example, surpassed BKW as the No. 2 burger chain in terms of sales back in 2011. And it’s momentum hasn’t slowed; the Pretzel Bacon Cheeseburger has been a huge hit and WEN stock is soaring.
The result for BKW: U.S. and Canada comparable sales growth declined 0.3% in the quarter.
Still, comparable store sales in Asia Pacific made up for the softness, growing 3.7% and helping BKW post an overall improvement of just under 1%.
Investors were pleased with the Burger King earnings beat and overseas growth. BKW stock opened to gains of 5% this morning, and has held on to around 4% of that climb.
Burger King stock briefly broke through the high of $21 it reached in June — around a year after it returned to the public market — and is now hovering around that resistance level. That’s a promising sign, though, considering BKW stock has been moving sideways since this summer.
BKW stock simply needs to break through that high in order to tack more on to its market-beating year-to-date climb.
There’s reason to think that could be in the cards for BKW, too. While consumer spending remains a headwind, Burger King earnings growth is expected to be 16% long-term.
That makes BKW stock look like the best bargain for restaurant investors. BKW stock sports a PEG ratio of 1.54 — a bit frothy, but not terrible considering McDonald’s, Wendy’s and Yum Brands (YUM) all sport PEG ratios north of 2.
If you believe in BKW growth prospects, don’t be afraid to take a bite of the stock.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
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