fbpx

McDonald’s is Thriving as it Executes its Turnaround Plan

Stock (Symbol)

McDonald’s (MCD)

Stock Price

$117

Sector
Retail & Travel
Data is as of
September 22, 2016
Expected to Report
Oct 21
Company Description
mcdonalds_happymealMcDonald’s Corporation franchises and operates McDonald’s restaurants in the global restaurant industry. These restaurants serve menu at various price points providing value in 119 countries globally. All restaurants are operated either by the Company or by franchisees, including conventional franchisees under franchise arrangements, and developmental licensees and foreign affiliated markets under license agreements. Under the conventional franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and decor of their restaurant businesses, and by reinvesting in the business over time. The Company owns the land and building or secures long-term leases for both Company-operated and conventional franchised restaurant sites. Source: Thomson Financial
Sharek’s Take
David SharekMcDonald’s (MCD) is thriving as management has the company back on track. MCD is driving sales higher with its All Day Breakfast Menu and McPick 2, and a more focused menu which got rid of some other items such as burger wraps is helping profits. Last qtr the world’s largest restaurant chain delivered 15% profit growth on -3% sales growth (F/X hurt sales) and +3% same store sales growth. The company is closing around 500 underperforming locations this year, opening 1000 new restaurants, and has 37,000 worldwide. McDonald’s is a solid investment for conservative and retirement accounts. The stock is extremely safe and pays dividend a yield of 3%. The dividend has increased every year since MCD first payed one in 1976. McDonald’s has an Estimated Long-Term Growth Rate of 9% a year in addition to the 3% yield, for a hypothetical 12% est total annual return. The stock has been in a downtrend the past six months, which is good because the P/E has been too high for a year now. The stock currently sells for 21x earnings, a little above my Fair Value of 20x. I would like to purchase MCD for conservative clients if the stock were to fall below $110.
One Year Chart
mcd_2016_q3This company has been putting out some impressive profit growth the past year as it has beaten street estimates the past four qtrs. Although profit growth is expected to be just 6%, 8%, 9% and 8% the next 4 qtrs, the company could easily beat the street and continue on its trend of double-digit growth. I’m kind of surprised the stock’s been in a downtrend, but this turnaround has been happening for a while now and maybe investors have gotten bored. Also, conservative stocks like this were all the rage from mid-2015 through mid-2016 and now growth stocks are the ones outperforming.

 

Fair Value
mcd_2016_q3_phMCD made $5.55 in 2013 and had a median stock price of $96. Now it’s expected to earn the $5.56 this year yet the price is $117. I continue to believe this stock is overvalued. My Fair Value is 20x earnings, but notice MCD had a 17 P/E from 2011-2013. Maybe the downtrend will push the stock lower than the $110 I’m hoping for?
Bottom Line
mcd_2016_q3_10yrMcDonald’s is one of the few stocks you can put in a safe deposit box for decades and not worry about. Although its well past its growth days, the stock continues to churn its way higher. The new initiatives have brought new life into the burger chain and the company is profiting handsomely — I’m shocked such a big restaurant can deliver greater than 10% profit growth. Although I don’t own MCD, I have tons of respect for this stock and am patiently waiting to add it to my Conservative Portfolio. My target price to buy in at is $110.
Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

Not a member? Sign up here for $25 a month.