The Burger Wars: McDonald's Vs. Wendy's

| About: McDonald's Corporation (MCD)
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I wanted to do an article on McDonald's (NYSE: MCD) vs. Burger King, but Burger King is unfortunately a private company at the moment, although it will be returning to the NYSE later this year. Therefore, I have chosen Wendy's (NASDAQ: WEN), the number three burger chain, for this analysis.

In my analysis, I tend to rely heavily on analyst opinion and estimates. I figure they have been studying the stock for a while and probably have a better handle on the numbers than I do. I do look at current news, as well, but I like to lean more on the numbers to provide an objective recommendation.

McDonald's is currently trading at about $91, off 11% from its 52-week high of $102.22 achieved in January. It has a PE of 17.0 and pays a 3.1% dividend. The current analyst rating is a 2.3 (1.0 = Strong Buy, 5.0 = Sell) with a mean target price of $106.05. There are four Strong Buy recommendations, 14 Buys, 12 Holds, and 0 Underperforms or Sells.

The full-year 2012 consensus estimated earnings is $5.68, which is 8% higher than the actual 2011 earnings of $5.27. The estimate for year-end 2013 is $6.26, 10% higher than year-end 2012.

The stock is down 9% year-to-date, and up 14% from this time last year. The current estimate of annual growth for the next 5 years is 9.93%, compared to an industry average of 10.26% and a sector average of 15.30%.

Wendy's is trading at approximately $4.60 per share, off 18% from its 52-week high of $5.62 achieved last July. It has a PE of 29.9 and pays a dividend of 1.7%. Currently analysts rate it a 2.7 (two Strong Buys, two Buys, 14 Holds, and one Underperform) with a mean target price of $5.10.

Wendy's full-year consensus earnings estimate is 0.15, the same as actual 2011 earnings. Its estimate for year-end 2013 is $0.21, 40% higher than year-end 2012.

The stock is down 13% since the beginning of 2012, and down 7% from a year ago. Current 5-year annual growth is estimated at 13.68% vs the S&P at 10.30%.

There's really no comparison in the real world between McDonald's and Wendy's. McDonald's is a household name all over the world, and has been for a generation or more. There is little to no threat from Wendy's, although I *do* LOVE Wendy's Frosties, both vanilla and chocolate. I could eat one every day, all summer long….

Eventually, however, I go back to the numbers. With McDonald's current PE and year-end 2013 earnings estimate, I see a stock price of $106, or upside of 17%. Wendy's PE and earnings estimate leads to a stock price of $6.25, 36% upside. I know that Wendy's PE is a bit on the high side, but with 40% earnings growth forecast for the next year, I am willing to cut them some slack. And consider this a bit of bottom-fishing, and a riskier bet than McDonald's.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.