The Hudson Institute recently found that between 2006 and 2011, 10 million fewer servings of french fries were served at top restaurant chains. Maybe those sobering food documentaries finally made a dent. That being said, McDonald’s Corporation (NYSE:MCD) is (understandably) in an uncomfortable position, playing by a changing set of rules.
The fried potato vendor has just reported its first decline in same store sales in nine years–add that to a 4.6% decline in stock over the last year, and you have some faithful McDonald’s investors scratching their heads, wondering if this is a minor glitch in the fast-food machine or a sign of the times.
Susquehanna, the global investment firm (and the daily double answer for tonight), made news last Monday by putting some faith in those fries and McNuggets. They’ve raised their price target for the company from $98 to $109 per share, a speculated 13% increase from where it is now, around $93. Meanwhile, Dividend.com is not as generous; it gave the stock a DARS rating of 3.4 out of 5 stars, saying that the stock is not recommended.
Analysts are touting the rise of the fast-casual dining experience as one the culprits for Ronald the Clown’s latest McWoes, and the market appears to concur. Chipotle Mexican Grill, Inc. (NYSE:CMG), the maker of semi-organic $7 burritos, saw an increase in same store sales, with fourth quarter profits rising 6.8% to the height of $61.4 million. Yet for some investors, the news wasn’t good enough to put to rest the idea that the stock was overvalued and its P/E was unfavorable. Then Peter Lynch spoke up.
Last week Peter Lynch gave the stock an 87% favorable rating per Nasdaq Guru Analysis, pointing to the upside of it’s P/E. Investors should examine the P/E (36.34) relative to the growth rate (33.81%) based on the average of the 3, 4 and 5 year historical EPS growth rates for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for the CMG (1.07) is considered “O.K.”
Also to the benefit of Chipotle lovers is the company’s planned aggressive action. According to the Dow Jones Newswire, Chipotle is increasing it’s advertising and catering efforts, and CFO Jack Hartung foresees a possible raise in menu prices as early as mid-2013.