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A Closer Look At This Food Giant: McDonald’s Corporation (MCD)

Competitors

Just like McDonald’s, Yum! Brands, Inc. (NYSE:YUM) has announced that it would be opening 70 restaurants in Russia and former Soviet countries this year. The company is also looking for a new franchise partners in the region. YUM’s business in China has seen a substantial drop after the Chinese investigations revealed that its KFC chicken had excessive levels of antibiotics in it. As a result, the company has now cut off ties with more than 1,000 slaughterhouses in the region.

YUM is trading at a forward P/E (1yr) of 17.93x and has a dividend yield of 2.10%. YUM appears to be an average buy for the short run but it’s a great buy for the long run. You can have a look at my detailed take on YUM here.

On the other hand, Burger King Worldwide Inc (NYSE:BKW) is trading at a forward P/E (1yr) of 20.36x, making it one of the expensive buys in the burger industry. It has a PEG of 1.37 and a dividend yield of 1.10%. A mean recommendation of 2.6 on the sell side suggests that it’s one of the better buys in the industry but not the best. Therefore, I won’t recommend buying Burger King Worldwide at this stage.

Conclusion

With the U.S. economy recovering at a sluggish pace, consumers are cautious in spending their hard-earned money–January sales figure is a testimony to this. The first half of 2013 doesn’t look that bright for the company. As a result, I remain neutral on McDonald’s in the short run.

As the U.S. economy facing another risk of economic recession, people are moving away from the premier food products. The latest move from McDonald’s to cut off its “extra products” from its menu seems to be the right one. McDonald’s is not only battling with slow economic growth but also with tough competition in the market. McDonald’s strategy of altering menus with changing customers’ needs appears to be bang on target. The recent re-introduction of the dollar menu is an example of this, which has been doing really well in the market.

The article A Closer Look At This Food Giant originally appeared on Fool.com and is written by Waqar Saif.

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

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