McDonald’s Corporation (MCD) – Am I Loving It?

Who hasn’t eaten at a McDonald's Corporation (NYSE:MCD)? From U.S. to Europe to the Asia-Pacific region, every child must have enjoyed a “happy meal” at least once.

Shares of the world’s largest food chain were performing consistently well for years -- until last fall. On Nov. 16, 2012, the stock tumbled, hitting a low of $83.31. Shares, however, have since rebounded to around $98.54 after the burger giant reported its February sales.

McDonald's Corporation (NYSE:MCD)

Global sales fell by 1.5%, beating analysts’ forecasts calling for a decline of  around 1.7%. While the business continued to struggle in Japan -- where sales declined by 12% for stores opened for at least 13 months -- it reported positive sales for China and Australia. In Europe. which is McDonald's Corporation (NYSE:MCD) biggest market by sales, sales fell 1.5% but actually rose 2.7% after the leap-day was excluded from the previous year.

With a market cap of $98.99 billion as compared to rivals Burger King Worldwide Inc (NYSE:BKW) and Yum! Brands, Inc. (NYSE:YUM), with market caps of $6.5 billion and $30.5 billion, respectively, it certainly enjoys a few advantages.

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Apple Inc. (AAPL)With more stores at better locations, McDonald's Corporation (NYSE:MCD) also enjoys a reputation for selling low-priced foods-- a major driver of consumers to its outlets. One of McDonald's recent changes in its menu -- the dollar menu -- has also been resonating with customers.

Valuation

The following table shows a comparison of McDonald's with two of its rivals--Burger King and Yum! Brands. McDonald's has the best quarterly revenue growth among its peers. With trailing twelve month EPS of $5.36, analysts predict EPS of $5.78 for the current fiscal year and $6.33 next year -- an increase of 8% and 9.5%, respectively. McDonald's Corporation (NYSE:MCD) quarterly revenue growth is also better than its peers.

With a P/E ratio as low as 18.42 compared to Burger King’s 56.33 and Yum’s 20.04, a value investor wanting to add a low multiple fast-food stock in his portfolio would probably be willing to include McDonald's stock.

Also, with a good EPS forecast, solid operating margins and net income, McDonald's Corporation (NYSE:MCD) looks better than the rest.

Moreover, it has proved to be a shareholder-friendly company, continuously paying dividends to its shareholders and spending huge amounts of capital in buying back shares.

However, all these advantages don't suggest that this fast-food giant isn't facing any competition. Rivals, including Burger King and The Wendy's Company (NASDAQ:WEN), are slowly catching up by incorporating coffee drinks, salads and smoothies in their menu offerings.

In order to attract customers, these competitors are introducing seasonal menus, as well. Because of their smaller size, Burger King and Wendy's are more nimble than McDonald's and can take the risk of introducing seasonal menus knowing they can move on if the short-term offerings flop. This is forcing McDonald's to revise its menu and cut its fruit and walnut salad and chicken selects from its U.S restaurants. The market leaders is also deciding on whether or not to keep its premium Angus burgers.

Foolish bottom line

McDonald's chief executive, Don Thompson, was recently cited on the Chicago Business website as stating:

“We have the operating experience to manage through the current challenging environment and the right strategies in place to grow the business for the long term."

With McDonald's Corporation (NYSE:MCD) currently trading at a P/E ratio of 18.42, which is lower than the industry average of 21.2, and with the burger giant's plans for a Russian expansion, the stock will surely increase in value in the long-term. I am loving it, for sure!

The article McDonald's - Am I Loving It? originally appeared on Fool.com and is written by usha patodia.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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