Your gateway to insightful market trends, prudent personal finance advice, and the pulse of global economy.

USA Finance Digest is your one-stop destination for the latest financial news and insights

Your gateway to insightful market trends, prudent personal finance advice, and the pulse of global economy.

Some may call it corporate greed, and some may buy the media message, but the truth is that fast food isn’t cheap or quick. This CNBC short documentary covered some of the factors behind fast food price increases. However, it only covered one side of the equation, and investors should have access to the whole picture.
The whole picture includes some corporate greed factors, as the issue doesn’t just lie with wage increases and commodity costs; it goes way beyond that. Investors—and consumers—should know that brands like McDonald’s Co. NYSE: MCD keep taking advantage of today’s environment to bloat the bottom line, which is also a benefit of having such a strong brand moat.
On the other hand, the corporate greed index (proxied by net income margins) did not reach stocks like Yum! Brands Inc. NYSE: YUM, and that is why markets have been rewarding the stock over McDonald’s. Before investors find the truth behind Yum! Brands’ outperformance in detail, here’s where the fast food industry is headed.
Understanding Why Fast Food Inflation Is Surpassing Overall Inflation Rates
Investors were told it was because of wage increases, as remote and hybrid work outcompeted the demanding shifts behind a burger and fry station. However, because fast food margins are already pretty thin, boosting wages means these added costs must be made up somehow.
This is where rising prices come to fix the issue. Over the past 12 months, fast food inflation has outpaced not only restaurant inflation but overall U.S. inflation. Readings of 5.2% stood over 3.8% for restaurants and roughly the same for national core inflation rates.
Chicken and beef prices, the primary proteins used in fast food, have declined over the past 12 months. So, suppose commodity inputs can’t be blamed for price increases. What else could these companies point to to justify these accelerating price increases?The answer is corporate greed or the net profit margin rate. If net income margins rise, it cannot be due to higher input costs like commodities and wages. If item prices rise at a similar pace to input costs, then net income margins should stay the same; that’s not the case at McDonald’s.
McDonald’s Brand Moat: The Secret Behind Price Hikes Exceeding Cost Increases
Suppose there is no corporate greed factor to this issue. In that case, net income margins should increase yearly at a rate that roughly matches inflation. McDonald’s financials show a net income margin of 24.6% in 2020. Then, a sudden jump to 32.5% in 2021 is far from a behavior expected from rising wages and food costs.
$253.70 -0.78 (-0.31%) (As of 06/13/2024 ET)52-Week Range$245.73▼$302.39Dividend Yield2.63%P/E Ratio21.54Price Target$315.14
These elevated margins remained at these levels until 2023, when the net income margin reached 33.2%. 2023 saw a roughly 8.6% jump in margins, crystalizing the possibility of corporate greed beyond any wage or commodity cost increase.
Focused on these financial ratios, Wall Street analysts were happy to slap a $316.2 a share price target for McDonald’s stock, calling for a 23.7% upside from where it trades today. However much upside there may be for this stock, the market doesn’t like greed that much.
How can investors tell? McDonald’s stock has fallen behind over the past 12 months compared to the consumer discretionary sector. The Consumer Discretionary Select Sector SPDR Fund NYSEARCA: XLY pushed out a 9% annual performance, while McDonald’s stock actually fell by 11.4%.

Markets Favor Yum! Brands Stock for Maintaining Prices in Line with the Economy
For Yum! Brands’ financials, investors can see the company’s net income margin remains relatively steady. Before the COVID pandemic, Yum! Brands saw a net income margin of 23.1% in 2019, which didn’t jump as aggressively as McDonald’s.
$138.01 +0.71 (+0.52%) (As of 06/13/2024 ET)52-Week Range$115.53▼$143.20Dividend Yield1.94%P/E Ratio24.47Price Target$144.33
Fast forwarding to 2023, net income margins stood at 22.6% despite the wage increases and commodity input costs. As the company never pushed its luck by squeezing the situation into a profit margin expansion, analysts saw no need to reward it with a rising valuation.
This is why Wall Street analysts only see a $143.8 price target for Yum! Brands, implying a mere 4.2% upside from where it trades today, far from the double-digit run proposed for McDonald’s stock.
Despite the lack of Wall Street enthusiasm, markets noticed how Yum! keeps its situation realistic with the economy. Over the past 12 months, Yum! Brands stock outperformed McDonald’s stock by over 12%.
If the fast food industry’s current state remains the same and corporate greed stays at the helm of restaurant stocks, considerate brands like Yum! could see another winning round in the next couple of quarters.Before you consider Consumer Discretionary Select Sector SPDR Fund, you’ll want to hear this.MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Consumer Discretionary Select Sector SPDR Fund wasn’t on the list.While Consumer Discretionary Select Sector SPDR Fund currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.View The Five Stocks Here Which stocks are major institutional investors including hedge funds and endowments buying in today’s market? Click the link below and we’ll send you MarketBeat’s list of thirteen stocks that institutional investors are buying up as quickly as they can.Get This Free Report

Like this article? Share it with a colleague.
Link copied to clipboard.

Share this article
Shareable URL
Prev Post
Next Post
Leave a Reply

Your email address will not be published. Required fields are marked *

Read next
Key Points The financial sector has outperformed YTD, with an increase of over 8.5% compared to the overall…
Key Points Shares of Intel have once again frustrated investors, but the RSI suggests the stock is extremely…
Key Points Voyager Therapeutics is a biotechnology company focusing on gene therapies for neurological diseases.…
Key Points Mark Zuckerberg has sold some of his Meta stake, and the evidence points to his reasoning being on…