McDonald’s May Lose in Burger King Pair Trade: Chart

McDonald’s Corp. may lose more ground to Burger King Worldwide Inc. in the stock market as a menu overhaul proceeds, according to Jonathan Krinsky, Miller Tabak & Co.’s chief technical market analyst.

The CHART OF THE DAY tracks the price ratio between shares of the restaurant chains since Burger King went public in June

2012. The stock’s debut resulted from a merger with a company co-founded by William Ackman, a billionaire investor. Burger King is 70 percent-owned by 3G Capital Inc., which acquired the company in a 2010 buyout.

Buying Burger King and betting against McDonald’s through short sales may be a profitable trade, Krinsky wrote yesterday in a report with a similar chart. Short sales involve selling borrowed stock to profit from a drop in price.

“Each of these trades is interesting in its own right,” Krinsky wrote, “but the pair trade in particular seems to make sense.” The New York-based analyst made share-price estimates of $22 for Burger King and $87 for McDonald’s. This would move the ratio as high as 0.253, surpassing a record of 0.213 that was set on June 17. The ratio began the year at 0.186.

Shares of Burger King, based in Miami, rose 21 percent for the year through yesterday. The advance exceeded an 8 percent gain for McDonald’s, based in Oak Brook, Illinois. McDonald’s said yesterday that U.S. stores will bring out chicken wings during the fall season, and introduced egg-white breakfast sandwiches and chicken McWraps earlier in the year.

Scarcity may be working in favor of Burger King’s stock, according to data compiled by Bloomberg. Out of 351.1 million shares outstanding, only 27 percent are included in the float, or stock available for trading. Most of the rest belong to 3G, also based in Miami. McDonald’s has about 1 billion shares outstanding, and almost all of them are part of the float.

Before it's here, it's on the Bloomberg Terminal.