McDonald’s: A Growth & Income Buy

McDonald’s Corp. (MCD) continues to lead the industry in several areas. The fast food giant’s ROE of 29% nearly triples the industry average of 10%, while MCD’s net profit margin of 19% sits high above the industry average of 2%. The company’s fourth-quarter report is scheduled for release on Jan 26.

Company Description

McDonald’s is a well-known fast food chain with more than 30,000 local restaurants serving 52 million people in more than 100 countries each day. More than 70% of McDonald’s restaurants worldwide are owned and operated by independent proprietors

Solid Sales

November global sales were 7.7% higher. U.S. comparable sales were up 4.5% due to the continuing popularity of MCD’s breakfast menu and the strength of its chicken product line.

Asia/Pacific, Middle East and Africa sales jumped 13.2%. As in U.S., the breakfast menu was strong. Europe also showed growth of 7.8% with France, the U.K. and Russia leading in sales.

Quarterly Results Reflect Strong Growth

The company’s third-quarter results showed a year-over-year profit of 11% thanks to a boost seen in worldwide sales. MCD’s earnings per share of $1.05 surpassed the previous year’s total and came in 8.25% above analyst expectations. On average, the company exceeded consensus estimates by 8% over the past 5 consecutive quarters.

Revenues increased by 7% to $6.3 billion from $5.9 billion in the year ago period.

Strong worldwide sales growth of 7% contributed to a robust third quarter. In the U.S., third-quarter comparable sales jumped 4.7%.

Europe continued to be hot as sales increased 8.2%. Asia/Pacific, Middle East and Africa remained strong with 7.8% growth led by Australia and China. The growth drivers in Asia/Pacific were breakfast, core menu extensions and value.

Domestically, the quarter saw its highest sales increase in 2008 thanks to sales of the Big Mac and value-based beverages.

Results for the fourth quarter are scheduled for release on Jan 26.

Higher Income and Solid Fundamentals

The fast food giant boosted its dividend by 33% to 50 cents per share. MCD noted that the dividend is payable December 15 to shareholders of record on December 1. The company is yielding 2.7% in an industry that virtually pays no income.

MCD’s return on equity (ROE) of 29% nearly triples the industry’s 10%, while MCD’s net profit margin of 19% sits high above the industry average of 2%.

Analyst earnings estimates for 2009 have been holding steady around $3.82 per share level over the past 90 days.

Wall Street currently expects 5.42% earnings growth in 2009. But long term projections calls for 5-year average earnings per share growth of 11.17%.

McDonald’s is trading with a forward P/E of 15.06. Its price-to-book is 5.35.

Subscribe by RSS Subscribe by Email