McDonald's Continues to Dominate During the Recession

McDonald’s (MCD) yesterday morning reported another excellent quarter. Global same store sales increased 3.8% compared to the year ago period including gains of 2.5% in the US, 5.8% in Europe and 2.2% in Asia, the Middle East and Africa. That’s some solid sales growth in this environment. Net Income was up 6% and EPS 10% as they bought back 3.3% of outstanding shares over the last 12 months. They are going to earn about $4 a share this year so at the current $60 price that’s a 15 multiple on current earnings - not expensive at all. They also raised their quarterly dividend to 55 cents for a 3.67% yield. This is a good stock and one that I’m interested in owning in the low $50s.

Notably, McDonald’s stock has only rallied about 18% since the March low - far below the overall move in the S&P. This rally doesn’t seem all that interested in quality stocks.

Disclosure: Top Gun has no position in McDonald’s (MCD) shares.

Comments

[John Gordon:]

McDonald's has the most sophisticated operations, real estate and marketing machine of all the chain restaurant operators. Afterall, they were the first major chain restaurant to go public (1965) and set the framework for all other chain restaurant operators.

CEO Jim Skinner did caution as to expect flat to slightly negative US same store sales in October. Chipotle, another of the handful of companies running positive comps, expects flatish sales next year, as they have planned for no pricing.

We are not seeing material sales gains yet versus last year's depressed levels, and QSR is weak. There are a few brightening spots (BJRI, CAKE),and the Pei Wei component of PFCB, and we will publish our idea why next week.


John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

Oct 23 08:48 AM

[Jonathan Marek:]

Two things:
1) I expect the large foreign exposure must really help MCD as well, as the dollar continues its decline.
2) Anyone looking to write a good business book ought to consider really disecting MCD's Plan to Win in detail. It is clearly brilliant, bringing them great renewed success across economic climates.

Oct 23 11:34 AM

[user396040:]

This is an example of one of a number of blue chip stocks that are in the process of demonstrating that they can prosper even if what we are headed into is an L shaped recession. MCD is certainly a better place to park money than CDs or treasuries.

Oct 23 12:23 PM