McDonald’s (NYSE:MCD) announced late Wednesday CEO Don Thompson would step down from his post at the iconic burger chain, and investors agreed it’s time for a change. The company’s stock price jumped nearly 5 percent in afternoon trading on Thursday.
McDonald’s will need to make up for lost time. As of Thompson’s departure, McDonald’s stock price had stayed essentially flat during his tenure of less than three years. Meanwhile other blue-chip companies, as represented by the Dow Jones, advanced 36 percent during the same period.
yesterday's price jump is a bright spot on a long list of stumbles for the Golden Arches. Steve Easterbrook, the 48-year-old executive succeeding Thompson, will be the company’s third CEO in the past decade. He faces a difficult outlook, including a 15 percent drop in profits last year and a projected 1 percent drop in global same-store sales for January.
Turning the tide depends, as Easterbrook has said in prior interviews, on McDonald’s ability to compete with fast-casual restaurants, such as Chipotle (NYSE:CMG), that have gained traction with younger consumers. Whether Easterbrook can lead such a turnaround is far from certain; the company currently holds a Zacks Rank #5 (Strong Sell) and has seen nothing but downwardly revised analyst estimates in the past month, according to Zacks Research data.
3 Alternative Stocks
Even with the pessimism surrounding McDonald’s, the burger-loving investor need not despair. There are plenty of places where traders can get a good burger and pick up a stock with better prospects on the horizon, as indicated by significantly stronger Zacks Ranks (See also:3 Restaurant Stocks That Outperformed McDonald's in 2014).
Take Jack in the Box (NASDAQ:JACK), for example. The San Diego, California-based company operates and franchises quick-service restaurants that offer a broad variety of Mexican and classic American fast food. Offering the ability to customize orders and buy from the full menu, including breakfast, all day long, Jack in the Box appeals to modern consumers who desire control over their food.
JACK's approach to the burger chain sits well with investors too. Earnings have topped the Zacks Consensus Estimate three times in the past year, twice by margins of more than 13 percent. Recent revisions have pointed to higher earnings in the future, boosting JACK to a Zacks Rank #1 (Strong Buy) from a Zacks Rank #2 (Buy) in the past two weeks.
Remember also that there are plenty of iconic burger restaurants other than McDonald’s. The square patties and Frostys at The Wendy’s (NASDAQ:WEN) have their own followers, and so do the chain’s shares. Or if ice cream is your preferred side with a burger, investors might consider Sonic (NASDAQ:SONC), which saw its stock price soar 14.5 percent in the last month. Both Wendy’s and Sonic hold a Zacks Rank #2 (Buy), indicating recent gains could continue beyond January (See also: Will Sonic Shares Continue to Surge Higher?).
New Possibilities
Or maybe you like a different kind of burger, one that you’re willing to pay a few extra bucks for and can buy with an adult beverage. The burger chain that McDonald’s may need to fear isn’t even a public company yet, at least until Friday.
Shake Shack Inc, the New York chain that started out as a burger stand in Madison Square Park, is going public Friday and has potential investors drooling. The company plans to offer 5.75 million shares at $17 to $19 a piece and will use the ticker SHAK.
What’s particularly alluring about Shake Shack is that it brings something new to the industry. Customers love its high quality burgers with iconic shakes and fries but can also buy alcohol. Shake Shack is also known for a much higher level of hospitality, helping the company build an experience into the brand, which keeps younger demographics coming back.
Now operating 63 stores around the country, Shake Shack plans to open 10 new stores a year in the U.S. Annual sales volume per store was $7.4 million on average at Manhattan stores and $5 million outside of the city, according to preliminary regulatory filings (see also: Shake Shack IPO Buzz Builds as Offering Price Rises).