The global restaurant industry is projected to expand on a long-term basis due to continued population growth, higher per-capita incomes, and ongoing demand for dining out, Robert W. Baird & Co said.
The brokerage began coverage of McDonald's Corp
On McDonald's, Tarantino said his initial rating incorporates a positive view of the company's internal fundamentals and long-term prospects, which justify a premium valuation for the world's biggest fast-food restaurant operator.
We are confident McDonald's can capitalize on a globally recognizable brand, excellent value proposition, and powerful operating platform to deliver healthy near- and long-term results, said the analyst, who has a price target of $61 on the stock.
Despite near-term headwinds related to consumer spending and currency exchange rates, Burger King is expected to deliver solid near-term results based on its range of internal drivers and relatively defensive model, Tarantino said.
The company, can leverage its highly franchised business model to deliver annual earnings-per-share of above 13 to 16 percent while generating healthy return on invested capital and free cash flow, said the analyst, who has a price target of $28 on the stock.
The analyst set a price target of $28 on Yum Brands' stock and said he has a positive view of the company's internal fundamentals but the possibility of external factors, like a slower economy and unfavorable foreign currency, may restrict near-term results.
He said Yum is an appropriate holding for patient investors, as attractive long-term investment characteristics include above-average growth prospects, and healthy free cash flow that should support high levels of shareholder payouts.
Shares of McDonald's closed up 2.23 percent at $52.17, while those of Burger King closed up 4.62 percent at $22.43 Thursday on the New York Stock Exchange. Yum Brand shares closed up 5.24 percent at $26.73.
(Reporting by Sandhya Menon in Bangalore; Editing by Amitha Rajan)