Zacks.com releases the latest Analyst Interview. Today’s interview is with senior analyst Ann Northrop, who discusses Yum! Brands (NYSE: YUM), Wendy’s (NYSE: WEN), McDonalds (NYSE: MCD) and Morton’s (NYSE: MRT).
A synopsis of today’s Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.
How do restaurant valuations appear to you at this point?
Valuation multiples right now sort of incorporate future prospects. For instance, Yum! Brands (NYSE: YUM) had terrible comps in the first quarter – down 6% – but that was due to lingering concerns: the Taco Bell e-coli issue, the KFC New York City rat infestation. Before that, they were losing share to Wendy’s (NYSE: WEN) and McDonalds (NYSE: MCD), who were introducing value meals. So the valuation multiple of Yum! Brands has recently climbed, even though comps were bad, because it appears things are getting better. And they’ve been growing like gangbusters in China.
What do you see in the upscale segment? Is this group untouched by higher ARMs and gas prices?
I wouldn’t say it’s untouched, but it’s certainly doing better. And don’t get me wrong – I think quick-service is doing very well, but I think the prices already incorporate that good performance. But yes, the upscale segment has been doing fairly well.
For instance, Morton’s (NYSE: MRT) is a place where investors may get some growth. Over the next five years, I expect Morton’s will grow earnings by about 13% per year. They’ll get that through 5-8% unit growth, growing same-store sales by another 3-5%, and developing new vehicles to boost same-store sales, such as a remodeled bar. This would be a move toward attracting a consumer that is right now out of its core business consumer.
Their core consumer is a male businessperson on an expense account. That’s basically 80% of their consumers. So Morton’s is introducing smaller steaks, and their new bar is going to have smaller bar food items to introduce people to the restaurant.
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