Have Your Way With Burger King Worldwide

There's still a lot to like about the Home of the Whopper.

Jun 3, 2014 at 4:20PM

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Part of the appeal of the current fast-casual craze is the personalization of orders it affords consumers, along with the quick-service fresh ingredients and reasonable price points. According to a recent report from the market researchers at FoodThink, customization remains the trend of the future, and it's for that reason one has to wonder whether Burger King Worldwide (NYSE:BKW) isn't the perfect pick for investors.

If anyone understands the potential for a customizable menu, it's Burger King, which, if it didn't invent it in the fast-food industry, it more than anyone popularized it with its 1974 "Have It Your Way" advertising campaign. Customers were invited to hold the pickles and lettuce since special orders weren't a problem.

Somewhere along the way, though, it lost its way (the Arch Deluxe, anyone?). Or it was simply ahead of its time. In either case, McDonald's (NYSE:MCD) went on to become the premier burger joint while the growth of Chipotle Mexican Grill and Panera Bread heralded the rise of the fast-casual niche. And until recently, Burger King was simply an afterthought in all this. Today, though, Burger King's grilling up growth.

In April, it reported that global same-store sales rose 2% in constant currency lifting companywide revenues 6.9% year over year, although they look like they fell nearly 27% from the first quarter of 2013 due to the restaurant chain's refranchising activities, or the selling of company-owned stores back to franchisees, generally considered a bullish sign. While the stock has eased back from recent highs, overall shares trade 42% higher than a year ago, far outpacing McDonald's 9% rise and keeping pace with Wendy's (NASDAQ:WEN).

A number of new initiatives beyond refranchising help account for the turnabout for the burger flipper. Like Wendy's, it's upgraded its restaurants to create a more lounge-like atmosphere, elbowing its way into the fast-casual dining experience, limited the number of limited-time menu offerings -- though it still tries out new items, like its Satisfries -- and experimented with some novel innovations, like its BK Delivery home delivery service. 

McDonald's, which has struggled mightily to regain its footing, seems to have done just that, but by following many of the same prescriptions. Just recently, it announced plans to return as much as $20 billion in shareholder value to investors, partly through refranchising. The movement signals there is money available for franchisees to borrow, and though the parent's revenues take a hit initially, as can be seen in BK's results, refranchising serves to reduce overhead while providing a generally stable stream of income. Wendy's has resold hundreds of locations as well to franchisees.

While Burger King's shares aren't cheap despite giving back some of their gains, and it carries some $2.9 billion worth of debt on its balance sheet, the burger palace is generating lots of cash -- it increased $76 million to $863 million in the first quarter, or about 126% of net income -- and its global growth plans have attracted the likes of investors such as Bill Ackman of Pershing Square Capital, which owns a large stake in the company's stock, that previously touted the restaurant's appeal.

With a better investment picture, a valuation equal to or better than its rivals on many measures, and the backing of influential investors, Burger King could still be a whopper of a stock for investors.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends McDonald's. It recommends and owns shares of Chipotle Mexican Grill and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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