Seeking Alpha
Research analyst, valuentum
Profile| Send Message| ()  

On Friday, fast-food giant McDonald's (MCD) reported May same-store-sales numbers that were below expectations. The consensus same-store-sales growth estimate was 4.6%, but sales at the golden arches increased by only 3.3%. Same-store-sales in the US grew by 4.4% for the month of May, driven by new breakfast products as well as increased beverage sales. With a dividend yield of over 3%, and good prospects for future payout expansion, we may look to add McDonald's to our Dividend Growth Newsletter portfolio in coming weeks. Please view our dividend report on McDonald's here and then come right back.

Europe, which continues to struggle through massive economic issues and austerity, posted same-store-sales growth of only 2.9%, with Germany, the Eurozone's strongest economy, weighing on results. The company blamed the slowing global economy for its struggles in Europe, and also in its Asia/Pacific, Middle East, and Africa segment, which saw same-store-sales slide by 1.7% in May. Oddly enough, many believe that McDonald's is counter-cyclical, meaning that results improve in a weak economic environment.

We find the worries over these results somewhat curious, because the company's same-store-sales growth is actually greater year-to-date in 2012 (5.6%) than it was at the same time in 2011 (4.4%). However, we suspect CEO Jim Skinner's retirement, and the admission that second-quarter results will be pressured, have created an unreasonable amount of uncertainty regarding the company's future.

We also point to the strength in the US, where sales were up 5.3% for the quarter. The US is still the largest driver of business for McDonald's, and we believe this number bodes well for the company as well as the US economy. There have been some worries about resurgent product offerings from Wendy's (WEN) and Burger King, but the results, while slightly lower than expectations, indicate those concerns are overblown.

The stock is trading in our fair value range (click here for our fair value estimates), but we think the recent decline in the shares has created a compelling entry point. We continue to monitor constituents in our Dividend Growth portfolio to capture not only a generous income stream but also the greatest risk-adjusted performance over time.

Source: McDonald's May Performance Is No Reason To Panic