Anyone over 2 years old knows who Ronald McDonald is. And just about everyone over 2 years old has been to a McDonald's restaurant. So despite the challenges the company has recently experienced, the world is not going to give up on its most popular meal -- the all American hamburger.
McDonald’s Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company’'s restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. As of December 31, 2013, it operated 35,429 restaurants, including 28,691 franchised and 6,738 company-operated restaurants. The company was founded in 1940 and is based in Oak Brook, Illinois. (Daily Chart) (Weekly Chart)
McDonald’s Corporation (MCD) franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company’'s restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. As of December 31, 2013, it operated 35,429 restaurants, including 28,691 franchised and 6,738 company-operated restaurants. The company was founded in 1940 and is based in Oak Brook, Illinois. (Daily Chart) (Weekly Chart)
Data as of 4 January 2015
| Price $93.26 1yr Target $95.99 Analysts 20 1yr Cap Gain 2.92% Dividend $3.40 Yield 3.64% 1yr Est Tot Return 6.56% | Market Cap $90.76 Bil Beta 0.35 EPS (ttm) $5.09 Payout Ratio 66.79% EPS next yr $5.44 P/E 18.32 PEG 3.54 Forward P/E 17.14 | Debt/Equity 1.11 ROA 13.80% ROE 32.70% ROI 20.40% Sales $27.96 Bil Income $5.06 Bil Profit Margin 18.09% |
The Fundamentals
McDonald's recent quarterly reports have been mildly disappointing to investors. Revenue and earnings growth rates have been half of what they were just a couple of years ago. Traffic at the European store was down 1.4% and traffic at US stores was down 3.3%. If this wasn't enough, traffic at stores in the Middle East, Africa, and the Asia/Pacific was even worse due to concerns over food quality. As most investors know, the food quality problem was caused by one of McDonalds suppliers but that didn't matter. The damage to McDonalds image had already occurred.
In addition, other menu items like Chicken McNuggets and Big Macs were in short supply as McDonalds scrambled to find new suppliers. This has dented revenues and earnings in the short term but should not have a materiel effect on the long term fundamentals of the company since McDonalds has already corrected these problems. Bringing traffic back into the stores will not occur overnight but in time the company will attract more and more customers.
McDonalds is also experimenting with a number of initiatives. One idea they are implementing is bring back selective seasonal items like they recently did with the McRib. Another idea is allowing individual restaurants to cater to the local tastes of their customers. The parent company is also remodeling some of their restaurants to improve their look and feel as well as the traffic flow.
Analysts estimates are showing that the company will eventually get it's fundamentals back on track but like most things in life, timing is everything. In the meantime the company continues to increase the dividend by raising the payout ratio in the hope that they can lower the payout ratio in the future as earnings improve at the faster historical rate.
| Year 2015 Est 2014 Est 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 | Revenues $30.25 Bil $28.75 Bil $28.38 Bil $27.49 Bil $26.44 Bil $22.85 Bil $21.12 Bil $21.09 Bil $19.55 Bil $17.93 Bil $16.20 Bil $15.01 Bil $13.58 Bil | Earnings $5.65 $4.95 $5.55 $5.36 $5.27 $4.60 $3.98 $3.67 $2.91 $2.30 $1.97 $1.93 $1.43 | Dividends $3.45 $3.28 $3.12 $2.87 $2.53 $2.26 $2.05 $1.63 $1.50 $1.00 $0.67 $0.55 $0.40 | Payout Ratio 61.06% 66.26% 56.21% 53.54% 48.00% 49.13% 51.50% 44.41% 51.54% 43.47% 34.01% 28.49% 27.97% |
| Revenue Growth Rate 1 yr = 3.23% 2 yr = 3.60% 3 yr = 7.41% 4 yr = 7.66% 5 yr = 6.11% 10 yr = 7.64% | Earnings Growth Rate 1 yr = 3.54% 2 yr = 2.62% 3 yr = 6.39% 4 yr = 8.66% 5 yr = 8.86% 10 yr = 14.52% | Dividend Growth Rate 1 yr = 8.71% 2 yr = 11.04% 3 yr = 11.22% 4 yr = 11.07% 5 yr = 13.86% 10 yr = 22.80% |
Weekly Chart The Technicals
As can be seen in the company's weekly price chart that the stock has been going sideways for the last two years. What little variability there has been has obviously occurred between a low of approximately $90 and a high of approximately $100.
It can also be seen in the momentum indicators that the rise and fall of the price occurred simultaneously with the rise and fall of the RSI and the MACD. Using just these two indicators for confirmation would have allowed a swing trader to make quite a lot of money moving into and out of this stock.
The technicals are ultimately telling the average investor that there doesn't seem to be any hurry in accumulating shares of this company. Waiting for a more seductive price at or below $90 is probably the best entry point for both short term traders as well as long term investors.
As can be seen in the company's weekly price chart that the stock has been going sideways for the last two years. What little variability there has been has obviously occurred between a low of approximately $90 and a high of approximately $100.
It can also be seen in the momentum indicators that the rise and fall of the price occurred simultaneously with the rise and fall of the RSI and the MACD. Using just these two indicators for confirmation would have allowed a swing trader to make quite a lot of money moving into and out of this stock.
The technicals are ultimately telling the average investor that there doesn't seem to be any hurry in accumulating shares of this company. Waiting for a more seductive price at or below $90 is probably the best entry point for both short term traders as well as long term investors.
My Perspective
This is not the first time I've written an article on McDonalds Corp. On August 16, 2014 I wrote the article "McDonald's Corp" and even today it's worth reading again. Then, as now, McDonald's Corporation is a great dividend growth story that fits well into my portfolio if bought at the right price. But timing is everything, right?
If I had between $20,000 and $50,000 to throw at any one stock I wouldn't be interested in this stock at this time. For the most part I would wait for McDonalds to sort out its problems and then invest as it rose above $100 per share. That way I would be assured that its problems were behind it. I would look for investors to be moving the stock into new high territory on higher volume. That's usually an obvious sign the things are improving quickly.
Unfortunately I don't have that sort of money (or anywhere near that sort of money) just laying around waiting for an opportunity. As a small investor I have to build up positions in companies a few shares at a time when I think they're undervalued. And I think these shares are currently undervalued and, to a greater extent, unwanted at this time. This is the kind of knowledge a contrarian investor likes to hear.
McDonalds is a great company that I believe will once again recapture their customer base. Regardless of the fact that the millenials tend to prefer the casual dining experience over the fast food experience, I believe they too will return as customers before long. As every generation has transitioned from living the single lifestyle to being married and having families, they soon rediscover the benefits of Happy Meals and Playgrounds.
I intend to accumulate shares at or below $90 per share with the intent of collecting the 3.6% dividend (which is near the highest the dividend has ever been!) while waiting for the shares to move higher. Hopefully the shares will continue to move sideways so I will have the opportunity to accumulate a decent position before the stock becomes significantly more expensive.
This is not the first time I've written an article on McDonalds Corp. On August 16, 2014 I wrote the article "McDonald's Corp" and even today it's worth reading again. Then, as now, McDonald's Corporation is a great dividend growth story that fits well into my portfolio if bought at the right price. But timing is everything, right?
If I had between $20,000 and $50,000 to throw at any one stock I wouldn't be interested in this stock at this time. For the most part I would wait for McDonalds to sort out its problems and then invest as it rose above $100 per share. That way I would be assured that its problems were behind it. I would look for investors to be moving the stock into new high territory on higher volume. That's usually an obvious sign the things are improving quickly.
Unfortunately I don't have that sort of money (or anywhere near that sort of money) just laying around waiting for an opportunity. As a small investor I have to build up positions in companies a few shares at a time when I think they're undervalued. And I think these shares are currently undervalued and, to a greater extent, unwanted at this time. This is the kind of knowledge a contrarian investor likes to hear.
McDonalds is a great company that I believe will once again recapture their customer base. Regardless of the fact that the millenials tend to prefer the casual dining experience over the fast food experience, I believe they too will return as customers before long. As every generation has transitioned from living the single lifestyle to being married and having families, they soon rediscover the benefits of Happy Meals and Playgrounds.
I intend to accumulate shares at or below $90 per share with the intent of collecting the 3.6% dividend (which is near the highest the dividend has ever been!) while waiting for the shares to move higher. Hopefully the shares will continue to move sideways so I will have the opportunity to accumulate a decent position before the stock becomes significantly more expensive.
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