The Zacks Analyst Blog Highlights: Google, McDonald's, Yum! Brands, Chuy's Holdings and Burger King Worldwide

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Mar 12, 2013, 09:30 ET

CHICAGO, March 12, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Google Inc. (Nasdaq:GOOG), McDonald's Corp. (NYSE:MCD), Yum! Brands Inc. (NYSE:YUM), Chuy's Holdings Inc. (Nasdaq:CHUY) and Burger King Worldwide Inc. (NYSE:BKW).

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Here are highlights from Monday's Analyst Blog:

Google to Cut More Jobs

Google Inc. (Nasdaq:GOOG) plans to further eliminate 10% of its workforce, or about 1,200 jobs, at its Motorola Mobility division. The job cuts will take place in the U.S., China and India.

This layoff is a part of the company's ongoing efforts to optimize the cost structure amid declining sales, according to The Wall Street Journal. Last August, the company had announced its plans to cut 4,000 jobs or 20% of the workforce. Google had said that the layoff was necessary for Motorola Mobility to return to profitability.

To recap: Google had acquired cellphone maker Motorola Mobility Holdings last year in May. The deal was the biggest in its 13-year history. The company picked up a 100% stake for $40.0 per share in cash or a total consideration of approximately $12.5 billion.

Although the the company was acquired with the intention of shoring up Android's patent portfolio, analysts fretted that the deal would be a drag on Google's earnings. They have been concerned that adding a phone manufacturing business could hurt Google's margins and would create automatic rivalry with hardware partners Samsung, HTC and other phone makers that run Android.

Motorola Mobility has not been very profitable for Google so far. The company has been facing strong competition in the smartphone market from other larger players

Mickey D's Feb Comps Slump Again

Same-store sales (comps) at McDonald's Corp. (NYSE:MCD) continued to decline even in the second month of the year as the company witnessed a downward movement in all its geographical segments in Feb 2013.

Apart from the persistent global economic turmoil and peer pressure, a tough year-over-year comparison resulted in the comps decline in February. Comps at McDonald's dipped 1.5% in Feb 2013 as against 7.5% growth in the year-ago quarter and a decline of 1.9% in Jan 2013.

However, the decline in comps was less than anticipated. Management expected comps to suffer by approximately 3 percentage points in February. Excluding the negative calendar shift of 3.2 percentage points, as the year-ago period had an extra operating day due to the leap year, global comparable sales were up 1.7%

System-wide sales inched up 1.1% in constant currencies and fell 0.9% on a reported basis in the month under review.

In the U.S., comps fell the most by 3.3% compared to 11.1% growth recorded in Feb. 2012 mainly due to negative calendar shift.

Excluding this impact, comps in the U.S. were flat against robust prior-year performance. The new Grilled Onion Cheddar burger, the Hot 'n Spicy McChicken, McDonald's value lineup and the limited-time Fish McBites were the month's highlights.

In Europe, comps fell 0.5% compared with an increase of 4.0% in the year-ago period. Excluding the adverse calendar shift due to the leap year, comps grew 2.7%. Strong performance in U.K., and Russia was the high point in debt-ridden Europe. Focus on unique premium menu as well as value proposition and the expansion of Europe's breakfast and restaurant operating hours drove the segment's performance.

Comparable sales decreased 1.6% in Asia-Pacific, Middle East and Africa (APMEA) as against 2.4% growth in the year-ago month. Excluding the tough comparison arising out of leap year 2012, comps were up 1.5%. The sluggish performance in Japan was offset by a much better performance in China and Australia.

The shift of the Chinese New Year in February this year boosted sales in the month. We believe the negative perception of the consumers about the quality of chicken offered by U.S restaurateurs like McDonald's and Yum! Brands Inc. (NYSE:YUM) did not seem to affect sales at McDonald's this time.

Notably, in Dec 2012, Yum! Brands faced an allegation regarding the quality of chicken supplied to its KFC unit. Although food safety regulators in Shanghai cleared Yum!, McDonald's apprehended that the incident shattered consumer confidence about the quality of food offered by U.S. restaurateurs.

Our Take

Although McDonald's has faltered in the recent past, we still believe that the company has strong value. The company is consistently striving to bounce back amid a challenging macroeconomic environment by resorting to value-proposition and menu innovation.

However, McDonald's is still vulnerable to a fragile macro economy. The Oak Brook, Ill.-based chain is facing extreme challenges on its home turf. Some of its new menu offerings like Fish McBites, which the company relied heavily on, could not stir up comps.

The company has little pricing power in Europe due to wavering consumer confidence. With increased focus on value proposition along with less pricing power and increasing investments toward media, margins might suffer, going ahead. On a positive note, Asia-Pacific appears to be better placed. McDonald's currently retains a Zacks Rank #3 (Hold).

Some restaurateurs that are worth a look at the current level include Chuy's Holdings Inc. (Nasdaq:CHUY) and Burger King Worldwide Inc. (NYSE:BKW) with a Zacks Rank #2 (Buy).

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