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Investors Lovin’ It As McDonald’s Corp. (MCD) Hits $100

|Includes: McDonald's Corporation (MCD)

McDonald's recently reported very strong Q4 results and having broken through the $100 mark on the share price recently, investors across the board are taking a strong look at this globally recognized brand's solid profitability model, continued innovation and clear ability to deliver sustained growth. With MCD taking home the title of best performing stock in the Dow for 2011 and a healthy increase of some 33% in the share price for the year, it is no wonder everyone is taking a closer look at this success story.

Chief among the data points:

• Net Income for Q4 was up roughly 11% over the previous year to $1.38B, or Diluted EPS of $1.33/share, edging out the lower projections by analysts in the $1.29-1.30 range
• Sales Volume up 5.6% across the board (US 7.1%, Europe 7.3% and Asia Pacific/Mid East/Africa 6.9%)
• Revenue up 10% to $6.82B (just over the $6.81B projection)
• 16.54% increase annually in the rate of earnings since the Mar 2009 $50 share price
• Dividend yield of 2.8%, or $2.80/share, up every year since the Company went public in 1965 at $22.50/share
• PE ratio of 19.37; forward PE of 17.23; currently trading at around 7.5x book value

In many ways the stressed global economic landscape has reopened a classic dynamic and MCD has been able to make the best of it, leveraging strong market presence, brand identity, new menu choices tailored to the specific operating markets or larger global taste trends, the brilliant marketing the Company is known for, and the careful redesign/improvement of restaurants. It is no secret that the economy of scale MCD has created also plays a hand in profitability and the Company has been able to successfully push the model into just about every market on earth. As pocket books around the world tighten for various income levels, more and more people are turning to the convenient low-cost, high-value offerings of McDonald's.

CEO of MCD, Jim Skinner, noted that the tremendous capacity to expand the physical footprint through new openings and improvements to existing infrastructure (some $2.9B in capital expenditures) possessed by MCD, should see another 1300 locations open up in the coming year (adding to an already massive 33.5k plus location footprint) and the re-imaging of some 2,400 restaurants. Emerging markets show strong potential and the Asia Pacific/Mid East/Africa segment is now 22% of revenue, up 14% in just five years. Europe is playing into the trend extremely well, as confirmed by an MCD statement that the 9% increase in revenue for Europe, which accounts for 40% of revenue, up a whopping 36% from five years ago, occurred despite direct contention with economic uncertainty.

Even with the massive run to its current position, MCD still retains a strong valuation for all of the observable reasons, even to long-term investors. Indeed, the presence of McDonald's is so strong that pricing methodologies and strategies employed by the Company are routinely copied by other operators in the industry. A continued bevy of novel items, from McCafe drinks and premium coffees that penetrate parallel markets, to healthy items like fruit smoothies and wraps, keeps setting the fast food giant apart from competitors and the momentum amassed by the Company is truly impressive in its operating space.

Projections in a recent press release do indicate that rising commodity prices in US/Europe will impact profitability (up roughly 6% in 2011); however, with store traffic setting an all-time record of 68M visits per day, MCD is ready to strike hard and fast. There isn't much skepticism floating around about MCD management's ability to continue executing their winning strategy and despite rising commodity prices (which competitors also face), the Company has been able to move in higher margin items while successfully passing price hikes through to the consumer level. Analysts will be keen to see how MCD handles raw input cost increases and whether or not price increases will be implemented in future to deal with them.

For more information on the Company please visit the McDonald's Corporate Site at http://goo.gl/CCH03

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