On Monday, November 18, Jonathan Maze of Restaurant Finance Monitor noted that McDonald's (NYSE:MCD) "Menu Complexity" has become the biggest challenge for the company's franchisees, which are currently struggling to serve customers as quickly as a fast-food chain's customers would demand. In the wake of Mr. Maze's comments, I wanted to not only highlight how McDonald's plans on addressing the issue but also a number of reasons why I'm staying long on this particular restaurant play.
Addressing the Speed Issue
In an effort to address its struggles, McDonald's plans on implementing a few changes over the course of the next year. For example, the company plans on adding new refrigerators and high density prep tables to its kitchens so its stores can increase customization of orders and move products through more quickly. It also plans to add new ordering technology to increase speed of service while slowing the pace of some limited time offers to focus its attention on marketing a number of its traditional items.
If such changes are correctly implemented over the next 12-18 months, I think McDonald's could very well improve the speed of service as well as revenues, considering the fact that the average time it takes to serve a customer will be further reduced and more customers can therefore be served. If these changes are not implemented successfully or better yet if no improvement in speed occurs, then the company may find itself facing the same speed-related issues currently hindering the experience of its customers.
Recent Performance And Trend Behavior
On Tuesday, shares of MCD, which currently possess a market cap of $97.72 billion, a P/E ratio of 17.69, a forward P/E ratio of 16.28, and a current dividend yield of 3.31% ($3.24), settled at a price of $97.98/share.
Based on their closing price of $97.98/share, shares of MCD are trading 1.44% above their 20-day simple moving average, 1.75% above their 50-day simple moving average, and 1.00% above their 200-day simple moving average. These numbers indicate a short-term, mid-term and long-term uptrend for the stock which generally translates into a moderate buying mode for most near-term traders and longer-term investors.
36-Month Dividend Behavior
Since November 29, 2010, the company has increased its distribution four times over the last 36 months, with its most recent increase being paid to shareholders (of record as of December 2, 2013) on December 16th.
The company's forward yield of 3.34% ($3.24) coupled with its ability to continuously increase its distribution on an annual basis, make this particular restaurant stock a highly considerable option, especially for those who may be in the market for a sustainable stream of quarterly income.
Recapping Q3 2013
On Monday, October 21, McDonald's reported Q3 EPS of $1.52/share and revenue of $7.32 billion. These results surpassed EPS estimates by $0.01/share and missed revenue estimates by $20 million. It should be noted that the company's revenues have the potential to see a considerable improvement over the next 12-24 months, especially if the previously mentioned speed-related changes are successfully implemented and both sales and the number of customers serviced increases as a result of such changes.
According to McDonald's most recent 10-K, there are a number of risk factors all investors should consider. These factors include but are not limited to the fact that McDonald's ability to remain a relevant and trusted brand and to increase sales and profits depends largely on how well it can continue to execute its Plan to Win campaign as well as a number of other global initiatives, and the fact that its results and financial condition are affected by global and local market conditions, and the prolonged challenging economic environment can be expected to continue to pressure the company's results over the next 12-24 months.
For those of you who may be considering a position in McDonald's, I'd keep a watchful eye on a number of catalysts over the next 12-24 months as each could play a role in the company's long-term growth. For example, near-term investors should focus on the company's recent trend behavior, while longer-term investors should pay close attention to any revenue related growth that may be attributed to the recent changes McDonald's has made in an effort to improve its speed of service so that a greater number of customers can be served on a daily basis.
Disclosure: I am long MCD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.