Stock (Symbol)

McDonald’s (MCD)

Stock Price

$126

Sector

Retail & Travel

Data is as of

February 12, 2017

Expected to Report

Apr 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

Restaurant stocks have had a tough time lately as people are eating at home more, but McDonald’s (MCD) is bucking the trend as it continues to grow well. Last year the company sparked sales with the All-Day Breakfast menu and McPick 2 and profits jumped a solid 15%. This year, comparisons should be tougher due to last year’s success but the company is still expected to grow profits 8%. Now if the stock can also grow 8% and you include the 3% yield that would be an 11% return for one of the world’s safest stocks. But there’s a little issue with the valuation. MCD is $126 a share and my 2017 Fair Value is $130. Thus I’m waiting for a pullback before I add the stock to the Conservative Portfolio.

One Year Chart

McDonald’s grew profits 9% last qtr with the help of solid same store sales growth of 3%. Overall sales fell 4% for the qtr but that was due to accounting changes with franchises. Profits are expected to climb 8%, 8%, 6% and 10% the next 4 qtrs. 2017 profit estimates dipped from $6.19 to $6.17 but that’s no big deal.

Fair Value

This stock has had a median P/E of either 21 or 20 the past three years. But if you look further back the P/E used to be 17. I feel investors have fallen in love with dividend stocks, and with interest rates on the rise some money could rotate out of stocks like McDonald’s in the near future.

Bottom Line

McDonald’s is a core holding for conservative investors. A very safe stock with a juicy yield and a growth rate of more than 10% the past decade. But with the market at its highs and everyone bullish, I feel we could be in for a stock market a correction after earnings season. If that’s the case McDonald’s could come down too, and I would like to add it to the Conservative Portfolio if it goes below $120.