Sonic Corp. (NASDAQ: SONC) and McDonald’s Corporation (NYSE:MCD) are both retail/wholesale companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, risk, valuation, profitability, earnings, analyst recommendations and institutional ownership.

Risk & Volatility

Sonic Corp. has a beta of 1.77, indicating that its share price is 77% more volatile than the S&P 500. Comparatively, McDonald’s Corporation has a beta of 0.7, indicating that its share price is 30% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Sonic Corp. and McDonald’s Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Sonic Corp. 1 7 4 0 2.25
McDonald’s Corporation 0 9 22 0 2.71

Sonic Corp. presently has a consensus price target of $27.64, suggesting a potential upside of 20.84%. McDonald’s Corporation has a consensus price target of $162.05, suggesting a potential upside of 1.46%. Given Sonic Corp.’s higher possible upside, analysts plainly believe Sonic Corp. is more favorable than McDonald’s Corporation.

Dividends

Sonic Corp. pays an annual dividend of $0.56 per share and has a dividend yield of 2.4%. McDonald’s Corporation pays an annual dividend of $3.76 per share and has a dividend yield of 2.4%. Sonic Corp. pays out 37.3% of its earnings in the form of a dividend. McDonald’s Corporation pays out 61.5% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Sonic Corp. has raised its dividend for 40 consecutive years. Sonic Corp. is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

97.5% of Sonic Corp. shares are owned by institutional investors. Comparatively, 68.0% of McDonald’s Corporation shares are owned by institutional investors. 6.2% of Sonic Corp. shares are owned by company insiders. Comparatively, 0.2% of McDonald’s Corporation shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Earnings and Valuation

This table compares Sonic Corp. and McDonald’s Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Sonic Corp. $515.82 million 1.85 $158.68 million $1.50 15.25
McDonald’s Corporation $24.18 billion 5.35 $9.60 billion $6.11 26.14

McDonald’s Corporation has higher revenue and earnings than Sonic Corp.. Sonic Corp. is trading at a lower price-to-earnings ratio than McDonald’s Corporation, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Sonic Corp. and McDonald’s Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Sonic Corp. 13.23% -44.21% 9.71%
McDonald’s Corporation 21.00% -264.89% 16.21%

Summary

McDonald’s Corporation beats Sonic Corp. on 9 of the 17 factors compared between the two stocks.

About Sonic Corp.

Sonic Corp. operates and franchises the chain of drive-thru restaurants (Sonic Drive-Ins) in the United States. As of August 31, 2016, 3,557 Sonic Drive-Ins were in operation from coast to coast in 45 states, consisting of 345 Company drive-thrus and 3,212 franchise drive-thrus. As of August 31, 2016, its restaurant design and construction consisted of a kitchen housed in a one-story building, which was approximately 1,500 square feet, flanked by canopy-covered rows of 16 to 24 parking spaces, with each space having its own payment terminal, intercom speaker system and menu board. At a Sonic Drive-In, a customer drives into one of the parking spaces, orders through the intercom speaker system and has the food delivered by a carhop and Sonic Drive-Ins also include a drive-thru lane and patio seating to provide customers with alternative dining options. Its food items include specialty drinks, such as cherry limeades and slushes, ice cream desserts and chicken sandwiches and hamburgers.

About McDonald’s Corporation

McDonald’s Corporation (McDonald’s) operates and franchises McDonald’s restaurants. The Company’s restaurants serve a locally relevant menu of food and drinks sold at various price points in over 100 countries. The Company’s segments include U.S., International Lead Markets, High Growth Markets, and Foundational Markets and Corporate. The U.S. segment focuses on offering a platform for authentic ingredients that allows customers to customize their sandwiches. Its High Growth Markets segment includes its operations in markets, such as China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands and related markets. The International Lead markets segment includes the Company’s operations in various markets, such as Australia, Canada, France, Germany, the United Kingdom and related markets. The Foundational markets and Corporate segment is engaged in operating restaurants and increasing convenience to customers, including through drive-thru and delivery.

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