Stock (Symbol) |
McDonald’s (MCD) |
Stock Price |
$121 |
Sector |
| Retail & Travel |
Data is as of |
| December 10, 2016 |
Expected to Report |
| Jan 23 |
Company Description |
 McDonald’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 |
 I’ve wanted to pick up McDonald’s (MCD) for my Conservative Portfolio this year. But the stock got ahead of itself after positive news (and results) in late 2015 on the All Day Breakfast Menu and McPick 2. When the stock was high in February the P/E was 23 — and since has withered to 22, 21 and now 20. The median P/E was just 17 in 2011, 2012 and 2013. McDonald’s has grown profits at least 15% the last 4 qtrs, and the question is can it keep growing strong? Profit growth Estimates for the next 4 qtrs are 8%, 8%, 8% and 5%. Since MCD has beaten the street the last 4 qtrs I can imaging double-digit profit growth continuing — which would be great! McDonald’s pays a 3% dividend and if the stock would grow 10% a year that would be a great return on your investment for one of the safest stocks in the world. But, investors have flooded high yield stocks with interest rates low, and now with rates rising these high-yielders could revert back to the norm — which in this case might be 17x earnings and a $105 2017 Fair Value (I think that’s the downside sans a bit market selloff). So with the stock stuck in the middle of $110 and $130 should we buy here? I say we wait it out, and try to get the stock below $120. |
One Year Chart |
 MCD was trending down for around 6 months before the stock popped after the company posted profit growth of 16% last qtr, shooting past analysts estimates of 6% growth. The burger chain had -3% sales growth due to refranchising, but had same store sales growth of 4% which was quite impressive. Mickey D’s has been thriving with its All Day Breakfast Menu and McPick 2. A more focused menu got rid of some other items such as burger wraps and has helped boost profits. |
Fair Value |
 MCD made $5.55 in 2013 and had a median stock price of $96. Now it’s expected to earn slightly more this year yet the stock price is $121. This valuation is higher than normal. Valuation is a big deal with stocks, especially these slow growers. For example, if MCD makes $6.64 in 2018 and gets a 17 P/E the stock would be $113. Now you get dividends, so it isn’t that bad. But the stock could be stuck in this range for a while. I currently believe rapidly growing growth stocks provide the best values — and upside — in the stock market. |
Bottom Line |
 McDonald’s is one of the few stocks you can put in a safe deposit box for decades and not worry about. But, the stock is also prone to long periods of meandering back and forth. And since the stock’s grown faster than the profits the last decade (11% to 7%) that could foretell the stock falling back or maybe just basing a bit. I don’t think it will break out at $130, but I don’t know. I was about to buy MCD but held off as I feel the stock provides more of a value if you buy in one-teens. That’s where I would like to add the stock to the Conservative Portfolio — and hold it for the long-term. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
