McDonald's Mania Is Overblown

We think the spate of recent McDonald's (MCD) mania is way overblown from a fundamentals standpoint.

This week, comment came from Howard Penny of Hedgeye on CNBC Tuesday, where he pointed out that MCD's marketing was emphasizing ancillaries (the most recent, oatmeal) which posed a potential average check risk, and that it had gone too far in that direction versus emphasis on its burger heritage.

We agree it could, but MCD has the largest ad fund in the chain restaurant world, and can do several things at a time. We agree with Mark Haines of CNBC that it's hard to see where an oatmeal focus is going. But we have to look at the long tern.

Another concern was that MCD was going into "smaller" countries and perhaps was becoming a proxy for oversaturation. Smaller countries have people, too, and you don't need an entire nation to support one restaurant. My sense is that oversaturation is years -- if not decades -- away. Fear of U.S. burger oversaturation was cited domestically by the Street as early as the mid-1960s, before MCD went public in 1965.

Frankly, rising commodity costs and the necessary balance to average check is a far greater concern than worldwide saturation now. I'm also more interested in how the real estate margin is holding up, and the status of U.S. franchisees. Of course, November Asia Pacific Middle East and Africa comps -- up 2.4% -- could have been a bit stronger.

YUM Brands (YUM) is powerful worldwide, a primarily outside of U.S.- focused operator and competitor, but does not have a burger concept.

MCD TTM PE today is about 16.44, hardly nosebleed territory.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: McDonald's Mania Is Overblown