Critical Analysis: McDonald’s Corporation (MCD) versus Papa Murphy’s Holdings (NASDAQ:FRSH)

McDonald’s Corporation (NYSE: MCD) and Papa Murphy’s Holdings (NASDAQ:FRSH) are both retail/wholesale companies, but which is the better business? We will compare the two companies based on the strength of their analyst recommendations, institutional ownership, profitability, valuation, risk, dividends and earnings.

Risk & Volatility

McDonald’s Corporation has a beta of 0.69, meaning that its share price is 31% less volatile than the S&P 500. Comparatively, Papa Murphy’s Holdings has a beta of 0.05, meaning that its share price is 95% less volatile than the S&P 500.

Dividends

McDonald’s Corporation pays an annual dividend of $3.76 per share and has a dividend yield of 2.3%. Papa Murphy’s Holdings does not pay a dividend. McDonald’s Corporation pays out 61.5% of its earnings in the form of a dividend. Papa Murphy’s Holdings has increased its dividend for 40 consecutive years.

Analyst Recommendations

This is a breakdown of recent recommendations for McDonald’s Corporation and Papa Murphy’s Holdings, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
McDonald’s Corporation 0 8 23 0 2.74
Papa Murphy’s Holdings 0 4 0 0 2.00

McDonald’s Corporation presently has a consensus target price of $168.44, indicating a potential upside of 2.08%. Papa Murphy’s Holdings has a consensus target price of $4.75, indicating a potential downside of 17.96%. Given McDonald’s Corporation’s stronger consensus rating and higher probable upside, equities research analysts clearly believe McDonald’s Corporation is more favorable than Papa Murphy’s Holdings.

Institutional & Insider Ownership

67.9% of McDonald’s Corporation shares are held by institutional investors. Comparatively, 36.5% of Papa Murphy’s Holdings shares are held by institutional investors. 0.2% of McDonald’s Corporation shares are held by insiders. Comparatively, 3.1% of Papa Murphy’s Holdings shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares McDonald’s Corporation and Papa Murphy’s Holdings’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
McDonald’s Corporation 21.00% -264.89% 16.21%
Papa Murphy’s Holdings -8.43% 3.16% 1.15%

Valuation and Earnings

This table compares McDonald’s Corporation and Papa Murphy’s Holdings’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
McDonald’s Corporation $24.18 billion 5.53 $9.60 billion $6.11 27.01
Papa Murphy’s Holdings $125.10 million 0.79 $16.53 million ($0.63) -9.19

McDonald’s Corporation has higher revenue and earnings than Papa Murphy’s Holdings. Papa Murphy’s Holdings 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.

Summary

McDonald’s Corporation beats Papa Murphy’s Holdings on 12 of the 17 factors compared between the two stocks.

McDonald’s Corporation Company Profile

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.

Papa Murphy’s Holdings Company Profile

Papa Murphy’s Holdings, Inc. is a holding company. The Company, together with its subsidiaries, is a franchisor and operator of the Take ‘N’ Bake pizza chain in the United States. The Company franchises the right to operate Take ‘N’ Bake pizza franchises and operates Take ‘N’ Bake pizza stores owned by the Company. The Company operates through three segments: Domestic Company Stores, Domestic Franchise and International. Its Domestic Franchise segment consists of its domestic franchised stores, which represent its system-wide stores and derives its revenues from franchise and development fees and the collection of franchise royalties. The Domestic Company Stores segment consists of its Company-owned stores in the United States and derives its revenues from retail sales of pizza and side items to the general public. Its International segment consists of its stores outside of the United States, all of which are franchised and derives its revenues from franchise and development fees.

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