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We're Still Lovin' McDonald's
A well-structured revitalization plan, sustained domestic growth, innovative marketing campaigns, a focus on core brands, and a strong balance sheet are the main positives of McDonald’s (MCD - Analyst Report). Re-franchising continues to be another engine of growth, bolstering ROA [return on assets] by an expected 100 basis points.
We think additional margin and ROE [return on equity] expansion are possible as the company leverages its G&As [general and administrative costs] through cost control initiatives. McDonald's uses the cash generated from operations to retire debts, distribute dividends and pursue share repurchases.
We think this stock provides relative safety and moderate growth in a turbulent environment. From 2007 through 2009, management expects to return approximately $15 billion to $17 billion to shareholders through dividends and share repurchases. The company sold its minority ownership interest in the U.K.-based Pret-A-Manger for $215 million, resulting in a non-operating gain of about $150 million that will be reflected in 2Q08.
Demographics are expected to continue to favor the restaurant industry for some time to come. Given the U.S. dollar’s weakness, we favor restaurant companies, such as McDonald’s, that derive a majority of their revenue overseas. McDonald’s 1Q08 EPS from continuing operations increased 28.6% year-over-year and revenue went up 6.1% year over year. Hence, we maintain Buy recommendation for the company.
Read the full analyst report on MCD
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| Market Summary | Jul 31, 2010 13:24 pm ET |
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