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The Battle of the Burgers

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With the holiday shopping season officially underway, consumers are flooding stores to grab their share of deals, free gifts and more. But while you’re waiting endlessly to buy your teenager’s dream gift, or trying out a new dress, or busy matching shoes, guess what’s at the back of your mind -- a ready meal with the minimum of fuss and next to no waiting time at the end of it all. And that’s precisely why quick service restaurants (QSRs) will see higher sales this season (as in all such seasons).

“McDeals” Are Heading Home

So when everything is so perfect, why would a company like McDonald’s Corp (MCD - Free Report) that has grown phenomenally over the last few years be thinking of offering more deals? The answer is simple, competition gets worse every day.

The company didn’t have a very good third quarter and Europe made things worse. On the other hand, its McDeals discount scheme in Germany helped maintain market share, while “Loose Change” menus did the trick in Australia.  

The “King” Is Getting a Face-Lift

And what could be worse than a resurgent Burger King that has decided to come down to the level of us commoners? The company is doing away with its Monarch mascot and remodelling activities should be more or less complete by the middle of next year.

Wooing women and senior citizens is also on the list (statistics show we talk more and write more reviews). Burger King’s asset-light model is working perfectly and extra cash will now reach investors in the form of a small dividend. 

Wendy’s Is Working on “A Cut Above”

The Wendy’s Company (WEN - Free Report) wants to position its brand as “a cut above.” But let’s face it. The menu is still stale and the company is trying to pacify investors with a dividend increase and promise of share repurchases. Margins lag the others’ by a mile and the remodelling effort appears behind schedule.

Choosing The Perfect Bite

Estimate changes for 2012 and 2013 are positive for BKW, compared to negative for the other two. Additionally, the 2012 Earnings ESPs (Expected Surprise Prediction) for BKW, MCD and WEN are 1.70%, 0.00% and -7.69%, respectively, indicating that the Zacks Consensus Estimate for BKW could prove conservative, while that for WEN overly optimistic and MCD neutral.

Therefore, BKW has the best chance of upside following fourth quarter results. Its PEG of 1.4 is also attractive and beats both MCD and WEN, which have PEGs of 1.7 and 2, respectively.

Therefore, BKW has a Zacks #2 Rank (Buy in the next 1-3 months), with both MCD and WEN carrying a Zacks #3 Rank (Hold).

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