The stock market is giving new meaning to comfort food.
So far this year, shares of McDonald’s(MCD) and Yum Brands(YUM) are up 22% and 27%, respectively, versus the S&P 500’s 17% gain. Both companies use an asset-light model of franchising for the vast majority of their restaurants.
SunTrust Robinson Humphrey analyst Jake Bartlett said falling yields have boosted the major fast food names, which some investors consider defensive in a more uncertain economic environment.
“The asset-light fast food companies are attracting investors because they are valued as ‘bond proxies’ with their FCF [free-cash flow] yields more attractive as bond yields fall, are relatively insulated from wage and commodity cost inflation, and tend to gain market share in recessions (trade down),” he said in an email.
Even with the rally so far this year, Bartlett sees further upside for McDonald’s(MCD), which recently traded at $217. He has a Buy rating on the stock and a $240 price target.
In addition, Bartlett said smaller, secular growth chains were also doing well in this environment.
“The other group of outperforming restaurant companies have strong SSS [same-store sales growth] trends and clear sales drivers,” he added.
Bartlett cited Chipotle Mexican Grill(CMG) as an example with its strong same-store sales performance due to mobile ordering, a new rewards program, and innovative marketing campaigns.
Read More: Here’s How Chipotle Made a Stunning Comeback
He said Shake Shack(SHAK) is another standout with the “fastest store count growth among publicly traded restaurants.”
Shares of Chipotle Mexican Grill(CMG) and Shake Shack(SHAK) are up 91% and 114%, respectively, this year.
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