MOST NOTEWORTHY: Lincoln Educational, Sonus Networks and Novartis were today's noteworthy upgrades:
Lehman upgraded Lincoln Educational (NASDAQ: LINC) to Overweight from Equal Weight based on improving student enrollment growth and valuation.
Merriman upgraded Sonus Networks (NASDAQ: SONS) to Buy from Neutral on the company's strong AT&T (NYSE: T) outlook and near-term upside potential from Japan. They believe shares can trade towards the $5-$6 range.
Bernstein raised Novartis (NYSE: NVS) to Outperform from Market Perform as they believe the company's diversification position it well to withstand future generic expiries.
OTHER UPGRADES:
Goldman Sachs added Burger King (NYSE: BKC) to its Conviction Buy List.
Credit Suisse upgraded Imperial Tobacco (NYSE: ITY) to Outperform from Neutral.
McDonald's (NYSE: MCD) announced its same-store sales results for the month of April Thursday, and the data indicate a healthy fast-food business ("healthy fast food" -- isn't that an oxymoron?).
Global comps as a whole increased 5%. Comps for European locations increased 6.3%, and the Asia/Pacific/Middle East/Africa segment saw a 7.8% rise in same-store sales. McDonald's restaurants in the States increased an anemic 2%. The weak domestic sales really need to be addressed so that they can pull more weight and add to the cool story that is McDonald's.
The stock has been a pretty decent performer over the last several months, rising over 6% over the three-month timeframe, and over the one-month period, it is up over 7%. And the longer-period returns from the past are even more impressive. Imagine how McDonald's stock would perform if management figured out how to get people to visit the U.S.'s Golden Arches more often. I suppose April's performance should be praised since March saw a decline in U.S. comps, as this article makes plain, but that depreciation was the first one in five years, and that says to me that McDonald's needs to be careful.
It's all about the marketing, of course. There are a lot of choices out there -- Burger King (NYSE: BKC), Wendy's (NYSE: WEN) and Yum! Brands (NYSE: YUM) -- so I think promotion of the brand is key. Some will disagree and say that menus and pricing are the big drivers -- they are important, don't get me wrong, but perhaps McDonald's needs to take a cue from Burger King and its campaign with the creepy-king thing -- those commercials are clever. Still, if this comps reports says anything, it says that you shouldn't count the clown out -- McDonald's is a blue-chip stock that is near a 52-week high, and not only is it a great long-term/core holding, but it's also quite possibly an interesting shorter-term idea as well.
Disclosure: I don't own shares in any company mentioned here; positions can change at any time.
Burger King Holdings (NYSE: BKC) shares are falling after the company announced private-equity companies will offer 15 million shares of its stock. The selling stockholders currently own 58 million shares, representing 43% of outstanding shares, so this 15M share offering represents another 11% of the company and the extra supply should keep BKC's price lower for a period. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BKC.
After hitting a one-year high of $29.19 in December, the stock hit a one-year low of $21.60 in January. This morning, BKC opened at $27.36. So far today the stock has hit a low of $27.35 and a high of $27.94. As of 12:30, BKC is trading at $27.73, down $0.73 (-2.6%). The chart for BKC looks bullish but deteriorating, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in six and a half weeks as long as BKC is below $30 at June expiration. Burger King would have to rise by more than 8% before we would start to lose money. Learn more about this type of trade here.
This post is part of our Battle of the Brands feature. Let us know which brand you prefer, and check out other Battle of the Brands posts.
In this corner, the clown. After years of taking shots to the stomach, McDonald's (NYSE: MCD) was thought to be on the ropes, but has found new life in tightened operations, successful product launches, and a new aggressiveness. It's currently in training to take on the coffee-weight champ, Starbucks (NASDAQ: SBUX), in a no-holds-barred battle of the baristas.
In the other corner, the King. Burger King (NYSE: BKC), the burger chain with the creepiest ad campaign on television (what's with the young dude waking up to find the King in bed with him?) has thrived on a two-pronged approach; over-the-top menu items and movie/game tie-ins. BK hit the breakfast market hard with its enormous omelet sandwich, packing a wallop of 730 calories. Its Xbox game tie-in, a cheap game featuring the King was an enormous success, setting a trend that has been widely adopted.
Both chains are thriving as the third of the troika, Wendy's, continues to punch beneath its weight. With a three-year growth of almost 100% in its stock price, though, this bout clearing goes to the clown, on points.
Vote in our poll for McDonald's or Burger King as your preferred brand, and let us know in the comments why you love it.
McDonald's (NYSE: MCD) may be the big brand name in the fast-food industry, but don't discount Burger King (NYSE: BKC). The King reported its fiscal Q3 numbers on Thursday, and they were pretty regal indeed.
Revenues increased 10%, and earnings per share did even better, rising 20% to 30 cents (that beat earnings by three pennies, says Briefing.com). Now, when talking about retail stores and fast-food joints, the issue of same-store sales always comes up, since it's such an important element to consider (be sure to keep in mind that comps must always be put in an overall context, especially if you are only measuring a one-month timeframe). Global comps increased 5.8% for the quarter, a good showing for Burger King which wants to become a force to be reckoned with around the world. The domestic side of things isn't doing too badly either as comps in the United States and Canada moved up 5.4%. Restaurant margins, however, decreased due to the challenging commodity-cost environment we all live in nowadays. Otherwise, I see these earnings as very positive for Burger King, and I am bullish on the stock.
Sell in May and Go Away? As Wall Street comes to the end of what is often called the 'best six months' of the year, investors may be feeling cheated. And concerned. If that was the market at its best, what does the market at its worst look like? The past six months was the worst 'best six months' performance for stocks since 1973. And if market indicators hold up, May through October could be a tough period, as per the old Wall Street saw 'sell in May and go away.' But, in an unusual period on Wall Street, the old seasonal standby doesn't apply. But the opposite might. Sell what in May and go away? - CNNmoney Trading Strategies for May MarketWatch offers advice on how to get your portfolio off the ground this month. Trading Strategies - MarketWatch
Wendy's (NYSE: WEN) finally sold the company to Nelson Peltz. The price which Peltz company Triarc paid was about $26.78 per share only a 6% premium according to the AP. One of the reasons the firm went for so little may be that there were no other buyers. The Wall Street Journal writes that "The move puts an end to the year-long saga that began when Wendy's first said it would consider a sale last April after Mr. Peltz began pressuring the chain."
Peltz has gotten a very good deal and Wendy's shareholders have not. The chain's current stock price is near its 52-week low. Over the last six months, the company's shares are down about 23% while rivals Burger King (NYSE: BKC) and McDonald's (NYSE: MCD) are up about 5%. Of course, they are the market share leaders and deserve some premium for that.
But if fast food does well, especially in a poor economy when people cannot afford more expensive restaurants, Peltz will have picked up a prize. When a recovery comes around, Wendy's could become a very nice business and the billionaire will look like a genius.
Douglas A. McIntyre is an editor at 247wallst.com.
Yum! Brands (NYSE: YUM) reported Q1 numbers Tuesday after the bell, and the company came through with double-digit growth on the bottom line. Net sales increased 8%, and earnings per share, adjusted for special items, increased 19% to $0.42.
There's a lot of cool stuff in this report that shareholders will view in a positive light. The international story for Yum! is a good one, with operating profit for this part of the company increasing 18%. China continues to be a strong territory for the KFC, Taco Bell, and Pizza Hut brands -- as many have pointed out, Yum! is a great way to gain exposure to this market. And how about this -- management saw fit to buy back shares of the company to the tune of almost a billion bucks! That says something to shareholders, as does the increased guidance. Granted, Yum! upped the per-share expectation by only a couple of pennies to $1.87 (excluding items), but that's still the right direction, isn't it? Also, according to Briefing.com, the company beat Wall Street's expectations by two cents.
Yum!, which competes with McDonald's (NYSE: MCD), Burger King (NYSE: BKC), Wendy's (NYSE: WEN), and all manner of neighborhood eateries, needs to continue the good fight on the home front. It reversed a negative same-store sales trend this past quarter, but management must not rest on this nice stat -- Yum! must explore better marketing campaigns and branding tactics to keep the comps headed higher. Yum!'s stock is not far from a 52-week high, but I'm currently bullish on its prospects.
Disclosure: I own none of the companies mentioned here; positions can change at any time.
McDonald (NYSE: MCD) has issued a press release recently concerning the use of cellphone coupon marketing. The fast-food juggernaut wants its consumers to have the ability to snag a coupon whenever they desire and by hooking up with a company called Cellfire, McDonald's is hoping it can establish a relationship with some of the hip texters out there.
Cellphone users who download the Cellfire app can then text a certain number and receive a special code good for a specific offer. According to the release, McDonald's fans can take advantage of a free iced coffee promotion through April 27 in certain locations in Utah, Wyoming, and Nevada.
McDonald's knows we're an on-the-go society, and it obviously wants to leverage the fact that mobile devices are no longer just for talking -- we text, we play games, we surf the net, and, as I recently observed, we can even shop on Amazon on our cells (I say "we," but I should point out that I do not own a cell phone, believe it or not). However, as I stated in my previous post, I'm not so certain that Amazon's text-shopping service will take off.
I was in a fast-food frame of mind last night, so I thought I'd check out Wendy's (NYSE: WEN) same-store sales report from last week. For the first quarter, Wendy's average same-store sales at franchise locations in the United States were essentially flat, declining by a mere 0.1%. However, in the year-ago period, the performance was a lot better, as comps increased 3.7%. Average same-store sales at company locations declined 1.6%; this compares to an increase of 3.8% in last year's quarter.
The early Easter holiday and inclement weather were sourced as reasons for the poor performance. Hmmm...not so sure about that. Wendy's might have just dropped the ball this time around. Hey, it's not easy competing with Burger King (NYSE: BKC) and McDonald's (NYSE: MCD). As a matter of fact, in the case of Burger King, you have to admit that it does have a pretty edgy marketing campaign currently supporting its brand equity (I love the company's humorous commercials).
Comps aren't everything to a fast-food chain's story, but this lackluster performance doesn't compel me to open the URL to my broker and place an order for shares of the company. Complicating things is the fact that Wendy's has expressed its desire to sell itself to a buyer. This makes the situation speculative, to me at least. For now, I'll stay away from Wendy's as a potential investment idea, but I do continue to watch McDonald's -- I've been perpetually interested in owning that one, but haven't pulled the trigger yet. I will admit, however, that Wendy's burgers are pretty cool...
Disclosure: I don't own shares in any of the companies mentioned; positions can change at any time.
Burger King Holdings (NYSE: BKC) has been a strong performer since its 2006 IPO, but as McDonalds (NYSE: MCD) has invested aggressively in modernizing its restaurants, Burger King is feeling the pressure to keep up.
Solution: The Whopper Bar. According to the Wall Street Journal(subscription required), Burger King will begin opening a new line of stores this year under that name, offering a wider variety of burgers and a hipper, more Gen Y-oriented atmosphere.
The stores and menu will be smaller but company executives told the Journal that the stores will include "as many as ten types of Whoppers such as the Western Whopper, the Texas Double Whopper and the Angry Whopper, a version topped with spicy onions. One menu sketch has a section called "Pimp Your Whopper," where patrons can chose from additional toppings like jalapeno peppers, bacon and barbecue sauce."
The Journal was also told that the company could possibly serve alcohol at some locations.
I like this idea: The Whopper is an extremely strong brand, and putting on the marquee and building a hipper brand around it should work well. Assembling the burgers in view of customers should bolster the company's image (assuming it's done in a classy way), and may help the brand appeal to a more affluent demographic turned off by the stigma of "fast food." Hopefully they'll open one near me.
MOST NOTEWORTHY: Analog Semiconductors, OrthoVita and First Solar were today's noteworthy initiations:
Morgan Stanley initiated Analog Semiconductors with an In Line rating. The firm assumed National Semiconductor Corp (NYSE: NSM) with an Overweight rating and $26 target and is the firm's top pick; Analog Devices (NYSE: ADI) and Linear Tech (NASDAQ: LLTC) were initiated with Equal Weight ratings and a $32 target and $34 target, respectively.
Barrington believes OrthoVita (NASDAQ: VITA) is the market share and technological leader of the biomaterials market. The firm assumed shares with an Outperform rating and $4 target.
Canaccord Adams believes First Solar's (NASDAQ: FSLR) management and business model are among the best of any PV company and that execution has led to strong profitability plus a successful aggressive capacity ramp. Shares were started with a Buy rating and $325 target.
OTHER INITIATIONS:
Morgan Stanley initiated Yum! Brands (NYSE: YUM) and Domino's Pizza (NYSE: DPZ) with Equal Weight ratings and targets of $40 and $15, and also initiated McDonald's (NYSE: MCD) and Burger King (NYSE: BKC) with Overweight ratings and targets of $65 and $34.
Lehman initiated Alcoa (NYSE: AA) with an Overweight rating and $44 target.
CKE Restaurants (NYSE: CKR) reported earnings for the fourth quarter yesterday after the bell. Total revenue decreased 3% for the quarter, and net income from continuing operations was $0.00 per diluted share, which wasn't too good in comparison to last year's number, which was $0.17 per diluted share. Total revenue was flat for the year, and net income from continuing operations was $0.57 per diluted share versus $0.77 per diluted share in the previous fiscal year.
CKE Restaurants, which operates the Carl's Jr. and Hardee's brands, did not impress analysts, as earnings expectations for the quarter were missed by two pennies. I myself wasn't too impressed with the entire report. Same-store sales increased 0.9% at Carl's Jr. and 2% at Hardee's for 2007 -- I'm not going to jump up and down over that bit of news. In addition, costs are up because of inflationary pressures, and revenues have obviously been challenged. There's not a lot that I like about this story.
CKE's stock is certainly on the lower end of its 52-week range, but I can't say it is necessarily cheap; it closed yesterday at $12.45 -- the high for the year on the stock is $23.24. This is a situation that calls for an old standby: "There are better opportunities out there in this space." For me personally, if I'm looking at the burger business, I'm way more likely to consider a McDonald's (NYSE: MCD), a Burger King (NYSE: BKC), or a Wendy's (NYSE: WEN) before I entertain CKE as an investment idea. Although they don't do burgers (so far as I know), I'd even look at a Yum! Brands (NYSE: YUM) before CKE. These companies have better brand equities in my estimation. CKE may turn itself around, but I just wasn't impressed by my look at its data.
Disclosure: I own none of the companies mentioned here; positions can change at any time.
Starbucks (NYSE: SBUX) lost a class-action lawsuit, according to this article, centering on the sharing of tips between baristas and shift supervisors. Erstwhile barista Jou Chou filed the legal complaint in 2004. Class-action status was eventually granted, a move which then involved up to 100,000 employees in the company's California coffehouses. San Diego Superior Court Judge Patricia Cowett doesn't believe that employees in managerial positions should share in tips given to the baristas, and she paved the way for $100 million in back gratuities to be distributed to those so affected.
Naturally, Starbucks disagrees with this ruling and will appeal. A spokeswoman for the company, Valerie O'Neil, says this is nothing more than an example of "abuse of the class-action procedures in California's courts." This is a confusing issue, to say the least; shift supervisors do find themselves sometimes serving coffee to patrons. However, it seems, in my opinion at least, that the judge is correct in her interpretation of California law -- tip pooling cannot benefit those in managerial positions. We all know why it is done -- tips essentially subsidize the pay of supervisors/managers, and this is a beneficial thing for Starbucks.
However, I believe Starbucks is on the wrong end of this argument. It's too bad; Starbucks right now is fighting to regain the regal java status it once took for granted. Nowadays, joints like McDonald's (NYSE: MCD), Burger King (NYSE: BKC), and, of course, Dunkin' Donuts, are vigorously competing for their share of the coffee spoils. I don't drink coffee, but I know that there is money in the stuff, and that's why I think that, with all of its current troubles, Starbucks should work to put this legal action behind it so that it can concentrate on the bigger issue of significant sustainable growth. The negative publicity is a concern, and although this distraction won't, by itself, derail Starbucks, it is still nevertheless a distraction.
Disclosure: I don't own any shares of any company mentioned here; positions can change at any time.
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MOST NOTEWORTHY: Lincoln Educational, Sonus Networks and Novartis were today's noteworthy upgrades:
Here are some highlights from this past week's 
This post is part of our 
Yum! Brands
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Starbucks
Comfort Zone Investing: One thriving area of real estate: Apartments
Just how high will U.S. gasoline prices rise?
Nordstrom and Kohl's post smaller-than-expected Q1 profit declines
