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2 Fast Food Stocks That Will Do Best in a Recession

The fast-food industry is growing amid robust demand, and the growing popularity of online food delivery is expected to drive further growth. As fast-food stocks prove great defensive options amid recessionary fears, investors should add fundamentally sound stocks McDonald’s (MCD) and Nathan’s Famous (NATH) to their portfolios. Keep reading...

Analysts have cautioned of a recession this year as the Fed remains committed to raising interest rates to fight inflation. Moreover, given the regional bank failures in the U.S. recently, some strategists now expect a contraction in the economy to come sooner.

Fast food stocks tend to be great defensive picks as the recession moves in. So, I think investing in McDonald’s Corporation (MCD) and Nathan’s Famous, Inc. (NATH) could be wise now.

Despite the labor shortage hitting fast-food restaurants, the global fast-food industry is expected to reach $797.70 billion in 2023, with the US market expected to be $296.60 billion amid robust demand.

Brian Duncan, President of me&u USA, a global leader in at-table ordering specializing in restaurants and bars, said, “Restaurants can handle an upsurge in customers without needing to increase staffing to accommodate them. Tech solutions can increase the customer footfall, ultimately resulting in happier customers, higher profits, and bigger tips.”

Furthermore, quick-service and fast-food joints are growing because of smartphones' increasing popularity and downloadable food-ordering applications. The fast food market is expected to grow at a CAGR of 4.3% until 2027.

So, MCD and NATH could be the best fast-food stocks to own now.

McDonald’s Corporation (MCD)

MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.); International Operated Markets (IOM); and International Developmental Licensed Markets & Corporate (IDL).

MCD’s trailing-12-month gross profit margin of 56.97% is 62.8% higher than the industry average of 35%, while its trailing-12-month EBITDA margin of 52.69% is 362.3% higher than the industry average of 11.40%.

MCD has paid dividends for 21 consecutive years. Over the last three years, MCD’s dividend payouts have grown at a 6.4% CAGR. While MCD’s four-year average dividend yield is 2.26%, its current dividend translates to a 2.28% yield.

For the fiscal fourth quarter that ended December 31, 2022, MCD’s operating income increased 7.7% year-over-year to $2.58 billion. Its non-GAAP net income increased 13.3% year-over-year to $1.90 billion. Additionally, non-GAAP EPS came in at $2.59, representing a 16.1% increase from the prior-year quarter.

Street expects MCD’s revenue to increase 6.4% year-over-year to $25.91 billion in 2024. Its EPS is expected to increase 10.4% year-over-year to $11.69 in 2024. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 14.5% to close the last trading session at $266.34.

MCD’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MCD has an A grade for Quality and a B for Stability and Sentiment. Within the A-rated Restaurants industry, it is ranked #9 out of 46 stocks. Beyond what is stated above, we’ve also rated MCD for Momentum, Growth, and Value. Get all the MCD ratings here.

Nathan’s Famous, Inc. (NATH)

NATH operates in the food service industry as an owner of franchise restaurants under Nathan’s Famous brand name. The company also sells products bearing Nathan’s Famous trademarks through various distribution channels.

In terms of the trailing-12-month net income margin, NATH’s 14.45% is 212.8% higher than the 4.62% industry average. Its 22.63% trailing-12-month ROTA is 470.4% higher than the industry average of 3.97%.

NATH has paid dividends for four consecutive years. Over the last three years, NATH’s dividend payouts have grown at a 3.9% CAGR. While NATH’s four-year average dividend yield is 2.30%, its current dividend translates to a 2.71% yield.

NATH’s total revenues increased marginally year-over-year to $26.15 million, for the fiscal third quarter that ended December 25, 2022. The company’s net income increased 53.2% from the year-ago period to $3.26 million. Its adjusted EBITDA came in at $6.90 million, up 16.8% year-over-year. In addition, its EPS came in at $0.79, up 51.9% year-over-year.

The stock has gained 40.4% over the past nine months to close the last trading session at $73.76.

It is no surprise that NATH has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked first in the same industry. Moreover, it has an A grade for Quality and a B for Sentiment.

To see the additional ratings of NATH for Growth, Value, Momentum, and Stability, click here.

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MCD shares fell $1.33 (-0.50%) in premarket trading Thursday. Year-to-date, MCD has gained 1.65%, versus a 1.79% rise in the benchmark S&P 500 index during the same period.

About the Author: RashmiKumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.


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