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Chicago, IL – March 31, 2025 – Zacks Equity Research shares Fabrinet FN as the Bull of the Day and Fluor Corporation FLR as the Bear of the Day. In addition, Zacks Equity Research provides analysis on McDonald's Corp. MCD, The Wendy's Company WEN and Chipotle Mexican Grill CMG.
Here is a synopsis of all five stocks:
Fabrinet helps big tech companies, including Nvidia, by making small, precision parts used across AI data centers, telecom, and beyond.
FN has averaged 13% revenue growth over the past six years, and its earnings have surged. AI data center chip powerhouse Nvidia is one of Fabrinet's largest clients, and FN landed a potentially major partnership with Amazon in mid-March.
The stock has roughly tripled the Tech sector's performance since its 2010 IPO, and FN has crushed the broader technology space during the past three years, soaring 82% compared to Tech's 29%. This behind-the-scenes tech stock trades at a solid discount to its sector despite its near-term and long-term outperformance.
Fabrinet is trying to find support at a long-term moving average, and it trades 30% below its all-time highs.
Fabrinet is a leader in advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services for original equipment manufacturers of complex products.
Simply put, Fabrinet's offerings help other tech companies make the small, complex parts they need for their products.
Fabrinet is a behind-the-scenes firm with offerings that are becoming more critical by the day as AI hyperscalers and others race to build more data centers. For instance, some of its tech is used in data centers to help send information at lightning speeds, enabling AI programs to run smoothly.
Nvidia is one of Fabrinet's largest clients. The graphics chip powerhouse reportedly accounted for roughly 35% of Fabrinet's FY24 sales. Networking equipment giant Cisco Systems and optical components standout Lumentum are two of its other most important clients.
Fabrinet and Amazon entered into an agreement on March 12 for Amazon to buy warrants to purchase up to 381,922 shares of Fabrinet at $208.4826 per share. The deal incentivizes Fabrinet to deepen its role within Amazon's supply chain to help support the growth of its AI infrastructure.
FN has averaged 13% revenue growth over the past six years. It is projected to grow its FY25 (period ending in June 2025) revenue by another 18% and 12% in FY26, reaching $3.78 billion—up from $2.88 billion in FY24.
The company's consensus earnings estimates have jumped since its Q2 FY24 release, helping FN earn a Zacks Rank #1 (Strong Buy).
Fabrinet is expected to grow its adjusted earnings by 16% in FY25 and 11% in FY26, following 16% expansion last year. FN has also consistently topped our EPS estimates.
Fabrinet shares have soared 930% in the past 10 years, more than tripling the Zacks Tech sector and matching Amazon's performance. The stock has ripped 1,700% higher since its 2010 initial public offering, compared to Tech's 590% run.
This leader in advanced optical packaging and beyond has climbed 82% during the last three years, leaving Tech firmly in its rearview mirror once again.
Yet, investors can buy FN stock 30% below its highs. Fabrinet is attempting to find support near its long-term 21-month moving average, with its RSI at some of its most oversold levels since 2018.
On the valuation side, Fabrinet trades at a 15% discount to the Tech sector and 35% below its own highs at 20.4X forward 12-month earnings. FN is trading at its five-year median in terms of forward earnings, even though it has climbed 270%.
Fabrinet plays a critical behind-the-scenes role in the data center boom and the artificial intelligence revolution, which is likely to be measured in decades. The AI selloff, which was long overdue, gives investors a chance to buy FN at a far more reasonable price and valuation.
The company's proximity and direct connection with Nvidia and Amazon will be beneficial going forward as they fuel the AI arms race. Plus, Fabrinet is a well-run company with a stellar balance sheet, holding more cash and equivalents ($935 million) than total liabilities ($699 million).
Fluor Corporation helps design, build, and maintain massive infrastructure and industrial projects.
The stock has tumbled since early November after it became overheated and met resistance near its previous highs, following a massive five-year run.
Fluor's earnings revisions are trending in the wrong direction, and the stock has fallen below a potentially critical long-term moving average.
Fluor provides engineering, procurement, and construction (EPC) services for large-scale projects across various industries. The company also offers maintenance and project management services for these projects.
Simply put, Fluor helps design, build, and maintain massive infrastructure and industrial projects. The company operates through three main segments: Energy Solutions, Urban Solutions, and Mission Solutions.
The firm supports everything from traditional oil and gas refineries and pipelines to nuclear power and beyond. Additionally, its Urban Solutions segment works on various infrastructure projects, while Mission Solutions provides technical services to governments, such as nuclear security.
Fluor offers broad-based exposure to the energy transition, the broader buildout of U.S. energy infrastructure, and traditional projects like roads and bridges. However, the company's earnings and revenue growth have been inconsistent over the past several years.
The company provided downbeat earnings guidance when it reported its Q4 results on February 18. Its Q1 FY25 consensus earnings estimate has since tumbled 28%, with its full-year FY25 estimate down 14%.
Fluor's negative earnings revisions have earned it a Zacks Rank #5 (Strong Sell), extending a downward trend that began in late 2024.
FLR has skyrocketed 500% in the past five years, after tumbling between 2018 and mid-2020. However, the stock is up only 30% over the past 20 years, compared to the S&P 500's 410% run and its sector's 121%.
Fluor's selloff came after it failed to break out above its 2018 levels, and it is now trading below its 21-month moving average. It might be best to avoid Fluor stock for now and wait for management to provide guidance next quarter.
McDonald's Corp. stock has gained 7.8% in the year-to-date period, outperforming the Zacks Retail-Restaurant industry, the broader Retail-Wholesale sector and the S&P 500 index.
After hitting a pause due to the catastrophic E. coli outbreak announcement, this leading fast-food chain has bounced back due to favorable customer trends after it advocated food safety as its prime priority. By immediately removing the supplier from the supply chain, due to which it faced severe backlash, McDonald's was able to reinstate the consumers' confidence. Besides this, the effective implementation of its in-house initiatives like the Accelerating the Arches strategy, menu innovation, value offerings and global expansion strategies has been supporting the company's uptrend.
The industry MCD operates in is highly competitive and maintaining a recognized position in the market is a strenuous task. Backed by favorable tailwinds, the company has notably outperformed a few of the recognized industry players, including The Wendy's Company and Chipotle Mexican Grill, year to date. During the said time frame, the stock price of Wendy's and Chipotle shares have tumbled 7.9% and 15.5%, respectively.
As observed in the chart below, the 2025 earnings estimate revision of McDonald's has trended upward 0.1% in the past 30 days. The year's earnings estimate trend indicates 4.5% year-over-year growth, reflecting the optimistic views of the analysts, driven by the trends in favor of the company.
McDonald's is the world's largest chain of fast-food restaurants, with a presence in more than 100 countries. Increasing guest counts remain the company's top priority and it intends to regain customers by focusing on food quality, convenience and value. The brand recognition has helped the company gain positive results in its Arches campaign strategies, especially Accelerating the Arches, initiated in its top markets across the globe, thereby driving growth.
Notably, MCD's focus on enhancing its core menu and ensuring value offerings has been driving its prospects. In January 2025, it launched its McValue platform in the United States to provide consistency and compelling customers with flexibility over choices. By the first quarter of 2025 end, the company aims to enhance its value programs across several international markets to increase customer engagement and foster traffic growth. Similar to the company, industry players like Chipotle and Wendy's are witnessing favorable customer responses to menu innovation and pocket-friendly offerings.
Another growth driver of MCD is its focus on expanding its global footprint. It believes that there is a huge opportunity to grow all its brands globally by expanding its presence in existing markets and entering new ones. McDonald's plans to open approximately 2,200 restaurants globally in 2025, with a quarter of these new openings in its US and IOM segments. It targets to open 50,000 restaurants by 2027. Global expansion effort is one of the prime growth-driving strategies in this competitive industry as Restaurant Brands is also witnessing growth across its reportable brands through strong store development.
Furthermore, McDonald's increased focus on delivery, fostering digital penetration and offering a robust loyalty program also bode well. The company expects to increase the percentage of system-wide delivery sales originating from its mobile app to 30% by 2027. Since the launch of its loyalty program, the total number of 90-day active users has reached more than 170 million. In 2024, the system-wide sales to loyalty members were about $30 billion. MCD anticipates reaching 90-day active users of 250 million with $45 billion in annual loyalty system-wide sales by the end of 2027.
The company's current valuation is enticing for investors to look into it. MCD stock is currently trading at a discount compared with the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis. The discounted valuation indicates that, despite the recent stock price increase so far this year, it remains an attractive option for investors looking for a suitable entry point.
As the company paves through 2025, the lingering macroeconomic factors and inflationary pressures remain concerns.
Softer demand patterns in France, the United Kingdom and China are expected to restrict the company's comps growth. In 2024, its global comps inched down 0.1% against 9% growth in the prior year. Furthermore, high wage inflation and elevated commodity costs are going to pressure the margins for some time. In 2025, the company expects commodity costs and food, paper and labor inflation to impact margins to some extent.
Analysts are optimistic about MCD. Out of 37 recommendations contributing to the company's Average Brokerage Recommendation (ABR), 22 have rated the stock as a Strong Buy and two have rated it as a Buy, leading to an impressive ABR of 1.74 (representing 59.5% and 5.4% of all recommendations, respectively). A month ago, Strong Buy represented 58.3%. Wall Street's average price target for MCD stock is $331.1 per share, implying a potential upside of 5.9% from recent levels.
Per the discussion above, the company is witnessing a boost in its performance thanks to its in-house initiatives, including menu innovation, value offerings, a robust loyalty program and a focus on delivery sales through its mobile app. By increasing the digital penetration among its customers, MCD is expected to bolster its sales trends globally.
However, headwinds in the form of ongoing macroeconomic uncertainties and inflationary pressures are pressuring its margins to a certain extent. Also, softer comps trends in a few of the major international markets are off-putting as well.
Thus, by considering both sides of the coin, it is prudent for existing investors to hold on to this Zacks Rank #3 (Hold) company's shares for now, whereas new investors might want to wait for a more favorable entry point.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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This article originally published on Zacks Investment Research (zacks.com).
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