Return of the King?

In the world of fast food, the Golden Arches reign supreme. Growing profits, innovative practices, and solid fundamentals put McDonald's (NYSE: MCD  ) far above its nearest burger rivals. But now that Burger King has announced that it's re-entering the public markets with a fresh menu, is there risk looming ahead for Ronald McDonald and friends?

Hear ye, hear ye
After years of declining market share, Burger King has plans in action to fight back against McDonald's and Wendy's (NYSE: WEN  ) .

A few days ago, Burger King released its plan to modernize its operations. Everything from the menu to the uniform is due for a renovation. The various BK management teams have tried these strategies in the past, but this time around things seem more ... well done.

The 10 new items added to the menu represent the largest change the company has had since its beginning in 1954. Massive changes to a company's operations can signal one of two things.

  • It's in trouble and desperate.
  • It isn't playing around, and this is something to keep an eye on.

I'm not much of a fast food fan myself, but I am leaning toward the latter on this story.

A public figure once more
The buzz from the menu changes barely had time to sizzle before the next major announcement that Burger King will again trade on the NYSE.

The current owner, New York firm 3G Capital, is selling off a 29% stake in the company to a London-based shell company, Justice Holdings. What's most interesting about the move is who is behind it -- value-investing legend Bill Ackman. He, along with other notable investors, is at the reins of Justice Holdings and will have a major part in taking the fast-food chain public.

The remaining 71% will still be owned by 3G.

Burger King was last publicly traded from 2006 through 2010 before 3G took the company private. It was delisted in an effort to overhaul the company without having to be concerned with shareholders.

Though the King has stumbled for years and just recently lost its place to Wendy's as the No. 2 fast-food burger purveyor, things really do seem to be changing at the company.

I hesitate to say it, but this could be a very interesting turnaround story in the making. But before we get too ahead of ourselves, we need to understand the lay of the land.

Numbers don't lie
Even if the company hits a home run with its new products and its IPO, it still has a long way to go to disrupt its public competitors' stock prices. McDonald's has enjoyed growing profits year after year, with no end in sight.

But as an industrywide issue, it looks as if some real innovation is needed to reverse the trends.

Company

P/E

Revenue Gain/Loss Average for Past 3 Years

Cash Flow Gain/Loss Average for Past 3 Years*

McDonald's 18.65 8.5% 10.35%
Wendy's 125.5 (.03) (11.05)
Jack in the Box (Nasdaq: JACK  ) 19.07 (6.15) (45.0)
Chipotle (NYSE: CMG  ) 61.86 18.1 19.3

*Using cash flow from operating activities.
Sources: Yahoo! Finance, The Motley Fool.

You can see the innovators in the space are the only ones thriving at the moment. McDonald's has poured money into renovations and reshaping the company image -- and it's paying off.

Chipotle is growing magnificently because it's simply a model company -- amazingly well managed, with a hit product that people go crazy for. One could easily surmise that Chipotle's management learned a thing or two while under the wing of McD's.

Even Jack in the Box, despite weak overall performance, is finding good profits in its Mexican chain, Qdoba. And as we know from Chipotle, Americans' hunger for burritos is far from over.

The king's peach
Where can the new BK hurt investors? Investors in Wendy's should keep an eye on the King's international conquests. Management from both Burger King and Justice Holdings are touting "aggressive" international growth as a major force to be reckoned with for their competitors.

A play on international growth is a popular bet these days. But not all of these companies will make it on the global scale. Our analysts have found a great emerging-market pick that is growing rapidly and looks a lot like a company you may know -- Costco. Check out our free report, "The Motley Fool's Top Stock for 2012. "

Fool contributor Michael Lewis owns none of the stocks mentioned in the story above. The Motley Fool owns shares of Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill and McDonald's and creating a bear put spread position in Chipotle Mexican Grill. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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