Is McDonald’s Stock a Buy Now?

With shares of McDonald’s Corp (NYSE:MCD) trading at around $93.48, is MCD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

McDonald'sC = Catalyst for the Stock’s Movement

McDonald’s same-store sales were up 0.01 percent. That isn’t usually anything to get excited about, but it well-received because it was a marked improvement from the negative same-store sales fast-food chain reported in October. Investors care about direction more than actual results, and the direction was good.

On the other hand, management isn’t confident about January’s same-store sales. That number is expected to be negative. This might hurt the stock price a little, but since the expectation is already out there, it won’t be a significant event unless it’s a huge downside surprise.

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Same-store sales for the year were up 3.1 percent. McDonald’s also just beat expectations with an EPS of $1.38, but not many people cared. Once again, investors want to know about direction.

If you really listen to what McDonald’s has been saying, it’s that they’re setting up for the future by making new moves to gain market share, but the near-term is going to be rough. McDonald’s sees ongoing volatility due to weak consumer spending. McDonald’s also expects fast food dining to be flat at best in the near future.

McDonald’s has three primary goals at the moment, which are to optimize the menu, modernize the customer experience, and broaden the McDonald’s brand around the world. In most cases, these types of goals in a weak environment would sound like nothing more than management crooning to investors that everything is going to be okay. However, with McDonald’s, these are realistic goals that will likely be attained.

If you enjoy eating at McDonald’s, then you might like to know that Fish McBites, beef sandwiches, and chicken entrees will be coming to the menu in 2013.

Now let’s take a look at some important numbers for McDonald’s…

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for McDonald’s is stronger than the debt-to-equity ratios for Burger King Worldwide (BKW) and Yum! Brands (NYSE:YUM). McDonald’s also has a stellar balance sheet.

Debt-To-Equity

Cash

Long-Term Debt

MCD

0.96

$2.18 Billion

$0

BKW

2.74

$488.10 Million

$3.07 Billion

YUM

1.29

$942.00 Million

$3.02 Billion

 

T = Technicals on the Stock Chart Are Mixed

Over a three-year timeframe, McDonald’s has performed exceptionally well. However, the past year has been slow. A 3.30 yield has helped investors deal with this slow patch.  

1 Month

Year-To-Date

1 Year

3 Year

MCD

4.37%

5.65%

-2.60%

61.41%

BKW

5.54%

8.88%

-1.21%

N/A

YUM

2.87%

0.71%

8.89%

105.90%

 

At $93.48, McDonald’s is currently trading above all its averages.      

50-Day SMA

88.62

100-Day SMA

89.59

200-Day SMA

90.32

 

E = Earnings Have Been Steady

Annual earnings and revenue have increased consistently for several years now. This is expected for a blue chip like McDonald’s.

2008

2009

2010

2011

2012

Revenue ($)in billions

23.52

22.74

24.07

27.01

27.57

Diluted EPS ($)

3.76

4.11

4.58

5.27

5.36

 

When we look at the last quarter on a YoY basis, we see an increase in earnings and revenue.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue ($)in billions

6.82

6.55

6.92

7.15

6.95

Diluted EPS ($)

1.32

1.23

1.32

1.43

1.38

 

T = Trends Might Support the Industry

It’s difficult to establish whether or not trends support this industry. On one hand, fast-food restaurants offer more affordable menu items than almost any other dining option. On the other hand, the economy has still had an impact on growth. McDonald’s management has the potential to come up with solutions to assist growth.  

Conclusion

Let’s get right to what might be on your mind. If the stock market happens to get slammed as it did in 2008, what will happen to McDonald’s in regards to the stock price? The answer is that it won’t get hurt nearly as bad as most other stocks. It would absorb the blow relatively well while still paying out a healthy dividend. Therefore, you could make the argument that McDonald’s is one of the safest stocks out there. This doesn’t mean that you will see great returns, but capital preservation should always be the number one priority.

McDonald’s has an operating margin of 30.29 percent, an ROE of 40.01 percent, operating cash flow of $6.90 billion, steady annual growth, wise management, an excellent balance sheet, and it’s fairly valued at the moment.

McDonald’s is a long-term OUTPERFORM.

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