Thursday, August 30, 2012

McDonald's (MCD) 2012 Review


McDonald’s operates or licenses more than 33,500 fast food restaurants world wide. 

Over the past ten years, the company has grown profits at a 13% pace but dividends at 26% annualized while earning a 25%+ return on equity. Looking forward, the pace of advance of dividends should slow somewhat although earnings growth is expected to continue at an above average pace as a result of:

(1) global growth not only in the number of restaurants but also in same store sales,

(2) introduction of new higher margin products [McCafe Real Fruit Smoothies, Frappes, Angus snack wraps],

(3) a revitalization program aimed at increasing market share via rising restaurant visits, growing brand loyalty and a new marketing campaign,


Negatives:

(1) rising commodity prices and wage costs,

(2) increasing SGA associated with spending on the Olympic games,

(3) intense competition,

(4) the potential impact on sales of continuing economic malaise.

MCD is rated A++ by Value Line, carries a 45% debt to equity ratio, has an ongoing stock repurchase program and its stock yields 3.1%.

Statistical Summary


Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002



MCD


3.1% 9% 48% 10
IND 2.1 14* 35 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
MCD 45% 43% 0 21% A++
IND 63 30 NA 11 NA

*over 50% of the companies in this industry don’t pay a dividend

Chart

Note: MCD stock made great progress off its October 2008 low, quickly surpassing the downtrend off its August 2008 high (red line) and the November 2008 trading high (green line). Long term, the stock is in an uptrend (straight blue lines). Intermediate term, MCD recently broke down from its uptrend (purple lines) and re-set to a trading range (black lines). The wiggly blue lines are Bollinger Bands. The Dividend Growth and Aggressive Growth Portfolios own a 50% position in MCD, having Sold Half at $76 in late 2011---clearly a great example of why in our Sell Half Discipline we only......sell half. The upper boundary of its Buy Value Range is $59; the lower boundary of its Sell Half Range is $92.




http://finance.yahoo.com/q?s=MCD


Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.