McDonald's Corp (MCD)

On May 14, 2009 at 10:56 PM, rd80 (99.26) wrote:

McDonald’s should appeal to an investor looking for a core holding in a portfolio designed to produce increasing dividend income.

- Strengths:

Global footprint effectively creates income in a broadly diversified basket of currencies.

At the 14 May closing price of $53.57, MCD yields 3.7%. For comparison, the 10-year treasury yield is 3.1%. Micky D’s achieves that yield with at payout ratio of 46% and has raised the dividend every year since they started paying one in 1976.

The steady earnings growth and a relatively low payout ratio give MCD room to continue the string of dividend hikes.

The business isn’t recession proof, but is recession resistant. MCD has been regularly posting same-store sales increases through the recession.

- Weaknesses:

MCD is a low beta stock, which means it will probably under perform in a bull market

The debt to equity ratio of .82 isn’t out of line, but it could be expensive to refinance when interest rates turn back up.

Uncertain how many years growth can continue – there are only so many places in the world to put a McDonalds.

- Opportunities:

There are still growth opportunities for MCD overseas.

New coffee focus.

Demonstrated ability to test market new menu items and roll them out if testing is successful.

- Threats:

Some jurisdictions are considering menu restrictions or taxes on fast food.

Another run up in gas prices could reduce automobile trips reducing visits to the arches.

The company may not be able to pass commodity price increases along to consumers.

Tight credit markets could limit ability of franchisees to build new restaurants or update existing ones.

There are many strong competitors in the fast food business who could take market share.

- Commentary:

MCD’s five-year average dividend yield is 2.2%. In order to get back to that average, the stock would have to climb to $90.

Foreign exchange has been a crimp on earnings the past couple of quarters. If and when the dollar weakens again, that negative will reverse.

The new McCafe premium coffee focus isn’t likely to be a Starbucks killer, but it doesn’t have to be. Those who want the coffee house experience aren’t going to McDonald’s. However, I suspect a lot of customers are more interested in quick service and a better price; those folks will go to McDonald’s.

In short, McDonald’s is a solid, income producing stock. The company has the earnings growth and cash flow to continue annual dividend hikes. The stock should handily outperform the market averages in a weak stock market, but is likely to under perform in a roaring bull.

You aren’t going to discover any overlooked piece of information on a Dow 30 stock like MCD and it isn’t going to be the quick double you brag about at work. It’s just a boring, steady performer – and that’s a good thing.

CAPS Timeframe – 5 years

Disclosure – Long MCD in RL.

McDonalds is a great franchise that has continually had same-store sales increases. I believe this will continue into the future because of their established and well regarded management team. Moreover, their China market is expanding and adding drive-thrus at restaurants. This could lead to more sales as a majority of Stores in the US do about 60% of sales through their drive thru. Either way McDonalds is a winner!

Great global company and anchor for long term growth and income. Still at a fair price. Think global not local when you evaluate this one. I have lived in two emerging market Muslim countries (and traveled to others) and the restraunts have been clean, wll run (no surprise) and packed. For the last six months I have watched this stock rise 20 some percent waiting for it to come back. No longer...

This not real food. Me smash! Raaaagh!

Build position in 4 phases each of 25%. Select how much you want to invest in this stock and in first phase invest 25% amount of total investment you want to make.
If stock goes down [15%] keep averaging by adding 25% each time. Not more than 1 time in 1.5. months. So if stock keeps going down for 6 months you will be fully invested.
If in between stock keep going up don't average and go out if gain is 20% on investment.

McDonald's began their move toward higher growth a few years ago when they upgraded their coffee to compete with the Starbucks/Caribou trend. That move was successful, but the coffee houses had been adding food items that continued to draw more customers away at all times of the day. By adding more premium coffee options, McDonald's is pulling back that business, though some of the regained volume may be due to the general economy. The move also created more breakfast demand as announced by MCD in August 08. This strategy adds volume to existing stores with only a small increase in capital needs during a period of tightened credit. Part brilliant strategy and part luck for the timing, Micky-D may have found a way into the Starbucks niche that Starbucks may not easily counter. Even once we can tap our home equity again for two-buck muck once or twice per day, we may have developed a permanent fondness for tiled walls and bright lighting.

McDonalds is leading the charge among the American fast-food restaurants toward more balanced and health-sensitive meal offerings. But they know better than to stop making the industry's best fries!

A litle ahead of itself...

The company is a great international play. At the same time, it's rebuilding its image domestically to make a play for the "Starbucks crowd."

MCD had a huge run and has been hammered as part of the overall market slump. When things start to turn around, it should take off like a rocket!

McDonald's had some tough years but turned around quite an impressive turnaround -- and it seems to be keeping its act together. It has worked hard on its image and when times get tough (as it seems they are right now) I think its inexpensive food looks good to more and more people. It's also got a lot of assets, like its real estate. Last but not least, it's the leader in the fast food industry -- and you look at the P/Es of its primary rivals and you've got to wonder why investors go for those right now.

McDonald’s is the world’s leading foodservice retailer with around 31,000 worldwide locations serving nearly 50 million people in more than 119 countries every day. Being one of the world's most well-known and valuable brands, McDonald’s holds a leading share in the globally branded quick service restaurant segment of the informal eating-out market in virtually every country, in which it does business.

“Being better, not just bigger” has been the success mantra for McDonald’s for the past 3.5 years. McDonald’s is achieving this by enhancing its service, providing greater menu choice, variety, and value thereby creating more convenient and comfortable restaurant environments and connecting with customers through leadership marketing. The company’s three-tier menu approach featuring everyday low price platforms, classic core menu favorites, and premium offerings appeal to a broad range of customers and is contributing to increased customer visits.

Since introducing its strategic plan, the Plan to Win, which is developed to address the key drivers of the business and results (people, product, place, price, and promotion), the company has witnessed solid growth. The system-wide sales have increased at an average of 6% annually since 2002, the global comparable sales have shown a positive trend for the past 42 consecutive months, and the company has delivered double-digit annual increases in earnings per share.

Moreover, the global informal eating-out market is projected to grow by $32 billion this year. In addition, it is expected to grow by 4% to 5% annually for the next five years. McDonald’s, being the market leader in the segment along with its strategic plan to win, seems to be in a perfect position to capture this opportunity and is a true stock to invest in.

McDonald's is the best of the "burger joints". After saturating almost every market with their stores they still find ways to grow by expanding their menu's and spinning off brands such as Chipotle Mexican Grill. I believe MCD is a great long term investment.

The very large amount of growth over the past 3.75 years (26% per year) cannot hold out forever, especially with a company this large. However, that does not mean that the company cannot continue to outpace the S&P500.

The company continues to improve its image with remodeled and "classier" stores -- some even with fireplaces! A McDs with a fireplace? What's up with that?

Add that they have healthier fare for those who want, but still have all those sinfully tasty classics (Big Mac, anyone?) and you've probably got a long term winner. Besides, every American kid alive loves the place (or so it seems to many parents). Get 'em while they're young and they're your customer forever.

McDonald's is everywhere and it is certainly hard to resist ourselves from putting the car into the drive-thru on the way home. Customers are becoming increasingly self conscious about their what they eat, with the whole low-carb diets and everything. This food chain is making the necessary changes to keep up with this current trend, while still providing great tasting food and its dollar-menu. Its only a matter of time before they will make the switch to trans fat-free oil, then its all uphill from there.

Driving across country this summer got to view many McDonald's...our favorite coffee break. Aside from good coffee menu is improving and I see a lot of elaborate remodeling everywhere.

You would think that McDonalds would finally lose track of the times and be unable to recover. But every time you turn around, they're paying attention and setting trends. Will they be the great growth company they've been in the past? Hard to say for sure. But I'm guessing they'll do pretty darned well.

Way oversold today on no real (or at least unexpected) news. The US same store sales number for the MONTH of December was a widely forecasted and expected disappointment. They were flat.
Europe and Asia continue to grow and I think the story that people are "trading down" from the likes of Olive Garden, Red Lobster and other casual dining restaurants is getting tired. What's going to help MacDonald's is a recnet pull-back in oil and gasoline prices. On the conference call, management said that they expect domestic same store sales to rise 1.5% in January. Since January is almost over, this should be a pretty accurate assessment of the month. Under $50, the stock yield is an attractive 3%, which warrants an initial 1/3 down, if you can get it under $50...

Foolish Financial Freedom for ALL,

Deb

Nothing wrong with this company, just its stock price. Valuation shorts are the most dangerous kind, which is why I'm not short in real life, but the stock relative to growth is a little rich for my tastes. This is my bet that the next few quarters see somewhat less exciting reports, and the market grinds down relative multiples a little in response.

Have you ever seen a McDonald's restaurant fail?