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McDonald's Corporation - A Wax Ink Raw Value Report

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July 13, 2009 – Comments (5) | RELATED TICKERS: BKC.DL , WEN , YUM

At the end of fiscal 2008, McDonald's Corporation (NYSE: MCD) there were 31, 967 restaurants in 118 countries in the McDonald's system, 25,465 operated by franchisees and 6,502 operated by the company.

Based on a five (5) year hold, the company is on our watch list with a Reasonable Value Estimate of $79, a Buy Target of $39, a First Sell Target of $77, and a Close Target of $83.

As found elsewhere in this report, management believes that the company will continue to drive success in 2009 and beyond by remaining focused on being better, not just bigger.

Management further believes that the company will do this by further enhancing its understanding of consumers’ needs and wants; facilitating greater sharing and adoption of best practices and new ideas worldwide; and leveraging a strategic approach to implementing initiatives to drive the best bottom-line impact.

We’ve heard bullsh_t in our day, but never has it been so eloquently presented. It is statements like that which lead us to believe, at least until proven to us otherwise, that management is not only clueless about the world economy, but the company’s place in that economy as well.

In our opinion, coupling bullsh_t like management’s outlook for 2009, with what we believe was a gamble on the part of management to keep the company’s stock price propped up during 2008 by buying back company stock instead of reducing or maintaining the status quo when it came to debt, will inevitably lead to disaster for the stockholders of this company.

Accordingly, it is our opinion that management has introduced, through their ineptitude, greater risk for investors. As a result we are lowering our Buy Target for the stock to from $39 to $20.

While this is a price point not seen since 2003, considering what we believe was and is the complete and utter folly of management, a $20 price point may be here faster than any of us knows.

Wax

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5 Comments – Post Your Own

#1) On July 13, 2009 at 10:07 PM, ReadEmAnWeep (39.94) wrote:

U really think it will be down to 20?

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#2) On July 14, 2009 at 4:58 AM, wax (96.67) wrote:

ReadEm;

First of all I need to tell you that I am not now, nor have I ever been a financial analyst. I am just a working person that invests his own money based on his own research through a family investment club.

With that said, I think the stock has the potential to fall that low, yes. Will it? I have no idea. But the company's debt increased by almost $1 billion dollars in fiscal 2008 leaving the company with more than $10 billion in total debt.

Normally, this would not be a big consideration to me, given the company behind the debt. But these are not normal economic times, and while the company by all outward appearances is quite healthy, there were little things that stood out, such as the company's Quick (Acid Test) Ratio.

This ratio compares all of the company's Cash, Cash Equivalents and Receivables against Current Liabilities, and is a measure of the immediated liquidity of a company.

I like to see this number above 1.5. As noted in our report, this number was at 1.18. Just another little thing that points to an increase in risk, at least to me.

Taken individually these little things are not really noticed by most investors, I mean hey! it's McDonald's for goodness sake!

But in today's economy where ANY negative news will send a stock price into free fall I just think the company is being put in a position that increases the odds of a negative news event. 

Were I an investor in the company and the price fell to $20, I would certainly be adding to my position!

As it is, I will be a buyer of the stock at $20. Coupling a $20 basis with $1.50 plus per share in dividends, should make for a very tidy return based on a minimum 5 year hold.

Wax

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#3) On July 14, 2009 at 10:01 AM, chk999 (99.98) wrote:

Nice write up. I too would buy MCD if it got cheap enough. They aren't going out of business.

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#4) On July 14, 2009 at 11:09 PM, rd80 (98.35) wrote:

$1.50 plus per share in dividends,

Annual dividend is $2 per share.  At least until they raise it again in a few months.

IMHO, the only way MCD sees $20 is if it splits at least 3:1.

My recent MCD pitch for a counter point. Report this comment
#5) On July 15, 2009 at 8:38 PM, wax (96.67) wrote:

Russ;

Nice post on MSN Money. I agree with much of what you posted, and I understand why you don't see MCD at 20$. But to me, there is more there than meets the eye, as we wrote in our full report, we are not completely sold on management just yet. But we will see.

Wax

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