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MCD(NYSE) |
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McDonalds (MCD, NYSE) Last Updated July 15, 2000 Those investors who have been waiting for a stock market rotation out of the ever so hot technology and Internet sectors into more traditional, dare I say, value names, did not get their wish. On a quarter that saw Nasdaq drop along with the Dow and S&P 500, did not see that money flow into names like GE, Microsoft or Berkshire Hathaway. No, they saw more money into even more frivolous names without any history or any meaningful sales numbers. This is what a momentum market looks like. Watch it and learn, for if history is any guide these days when lost won't be back any time soon. Is that about to happen soon- is a question that can only be answered after we have crossed the bridge. What is clear however is that in the wake of this indiscriminate selling (and buying) value is being created and stocks are coming in the price range that make them very attractive for the longer term. One such stock is McDonald's Corporation . MCD develops, operates, franchises and services a worldwide system of restaurants that prepare, assemble, package and sell value-priced foods. The restaurants are operated by the Company, under franchise arrangements by franchisees that are independent third parties or by affiliates under joint-venture agreements between the Company and local business people. Franchisees purchase equipment, signs, seating and décor, reinvest in the business, and pay rent and service fees or royalties. The menus offered at McDonald's restaurants are basically uniform including the Big Mac, Quarter Pounder with Cheese and Arch Deluxe, the Filet-O-Fish, Grilled Chicken Deluxe and Crispy Chicken Deluxe, Chicken McNuggets, fries, salads, shakes, McFlurries, sundaes and cones, pies, cookies and beverages. Additionally, all the restaurants in the United States and some internationally offer breakfast items such as the Egg McMuffin, hotcakes and sausage, biscuit sandwiches and muffins. For the three months ended 3/00, total revenues rose 10% to $3.34 billion. Net income rose 12% to $450.9 million. Revenues reflect restaurant expansion and positive comparable sales. Earnings reflect improved margins due to decreased payroll and occupancy costs as a percent of sales. Was there any other negative announcement associated with the report? Not really. In fact the company said that the year 2000 will be better, the U.S. business continues to show great momentum and strength and Europe continues to do extraordinarily well. The key negative was sales -- at company-owned, affiliated and franchised restaurants - which rose only 5 percent in the quarter to $9.75 billion from $9.32 billion a year earlier. Also, company-operated margins decreased for the quarter as payroll costs, occupancy expenses, food and paper costs increased. Just a few quarters ago, MCD was touted as the true international play as it expands its reach across the world. Even now, McDonald's expects improvement in its Latin American and Japanese markets. To boost sales in Japan, which has been a soft spot for McDonald's in the last six months, the company said it would continue its aggressive value-pricing and is planning a new marketing message aimed at getting customers to eat in its restaurants during the week. McDonald's also said it plans to add 1,800 to 1,900 new restaurants this year, up from its previous forecast of about 1,800. The company's Market Capitalization is $49.8B, Price/Book 5.24 and Price/Sales 3.88. Currently, 6 analysts rate MCD a Strong Buy 6, 10 a Moderate Buy and 7 Hold. CHARTS A company that has consistently
produced over 20% return on equity and held up well even in tough
times Converting this to the target price
of MCD, we arrive at a full value range of $50 to $55 and that is if
things Following inputs were used to construct the charts; Beta 0.79 Earnings per share $1.39 , forecast next year $1.60 Return on Equity 21.00 % Debt/Equity 0.75 Plowback ratio 85%
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