$MCD Stock Charts, News & Quote – MCD
McDonald’s Corporation franchises and operates McDonald’s restaurants in the global restaurant industry. These restaurants serve menu at various price points providing value in 119 countries globally. All restaurants are operated either by the Company or by franchisees, including conventional franchisees under franchise arrangements, and developmental licensees and foreign affiliated markets under license agreements. Under the conventional franchise arrangement, franchisees provide a portion of the capital required by initially investing in the equipment, signs, seating and decor of their restaurant businesses, and by reinvesting in the business over time. The Company owns the land and building or secures long-term leases for both Company-operated and conventional franchised restaurant sites. In certain circumstances, the Company participates in reinvestment for conventional franchised restaurants. As of December 31, 2011, of the 33,510 restaurants in 119 countries 27,075 were franchised or licensed (including 19,527 franchised to conventional franchisees, 3,929 licensed to developmental licensees and 3,619 licensed to foreign affiliates (affiliates)-primarily Japan) and 6,435 were operated by the Company.
McDonald’s restaurants offer a uniform menu, although there are geographic variations to suit local consumer preferences and tastes. McDonald’s menu includes hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, Snack Wraps, French fries, salads, oatmeal, shakes, McFlurry desserts, sundaes, soft serve cones, pies, soft drinks, coffee, McCafe beverages and other beverages. In addition, the restaurants sell a range of other products during limited-time promotions. McDonald’s restaurants in the United States and international markets offer a full or limited breakfast menu. Breakfast offerings may include Egg McMuffin, Sausage McMuffin with Egg, McGriddles, biscuit and bagel sandwiches, and hotcakes. The business is managed as distinct geographic segments. Its segments include the United States (U.S.), Europe, and Asia/Pacific, Middle East and Africa (APMEA). In addition, it presents Other Countries and Corporate, which includes operations in Canada and Latin America, as well as Corporate activities. During 2011, the Company opened 1,118 traditional restaurants and 32 satellite restaurants (small, limited-menu restaurants for which the land and building are generally leased), and closed 246 traditional restaurants and 131 satellite restaurants.
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If we were to analyze and evaluate McDonald's in comparison to Yum Brands, we can see that McDonald's is a larger company in terms of absolute size. McDonald's revenue in the first nine months of FY 2012 was $20.6B while Yum! Brands checked in with $9.5B. McDonald's is different than Yum Brands in that YUM has three core brands (KFC, Pizza Hut and Taco Bell) while McDonald's Corporation's only current brand is McDonald's. McDonald's is primarily a burger chain with an emerging array of "healthy alternatives" while YUM offers fried chicken, pizza and Mexican food. We were surprised to see that YUM actually has 10% more restaurant locations than McDonald's and both companies rely heavily on franchisees and licensees in terms of actually operating the restaurant locations. McDonald's generates more revenue per location than YUM and actually has a higher profit margin (19.7%) than YUM (13.3%).
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Categories: McDonald's Corp.
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McDonald’s Corp. (MCD)
The stock price of McDonald’s has had a rough year. It started 2012 by peaking to over $100/share, but now has descended to $86/share, with a P/E of 16. The company has a substantial 3.58% dividend yield and has increased the dividend every year for decades. Early in November, however, McDonald’s reported for the first time in nine years, a month where they had a global same-location sales decrease. October 2012 figures were slightly weaker than October 2011 same-location figures, with global macroeconomic weakness and strengthening competition being the main factors. It’s a scenario where the company is not financially impacted in any meaningful way right away, but it’s a crack in the defense, a bad sign for market share, and it was major enough to lead to some changes in the executive team.
The company remains in solid financial shape. EPS continues to increase, the dividend payout ratio hovers at a bit over 50%, and the company recently increased its dividend on schedule by 10%. Based on the Gordon Growth Model, McDonald’s only needs to grow its dividend by 6.5% annually in order to produce a long-term 10% rate of return for shareholders, and yet the dividend has consistently grown far faster than that.
Two strongest players in this area appear to be McDonald’s and Yum Brands, so owning a bit of both appears to be a solid long-term play.
IBM (IBM)
Interestingly enough, IBM is a tech stock that Warren Buffett, who infamously avoids practically the entire tech industry due to not understanding it, has had the confidence to invest over $10 billion of Berkshire capital in. What impresses him and me alike about the company, is IBM’s use of capital. They set five-year plans for EPS, and then reach those goals, through a combination of organic growth, acquisitions, and share repurchases.
IBM’s latest quarter was decent, but revenue was a bit on the weak side, so the company stock price dropped from the low $200′s down to the $190′s. The post election broad market sell-off dropped it further to the $180′s, where I bought a sizable chunk. It currently hovers around $190/share with a P/E of under 14. The balance sheet is strong, their operations are globally diverse, and they’re sticking to long-term plans rather than quarter-by-quarter plays.
A downside for dividend investors is the rather low 1.79% dividend yield. But to give a portfolio some exposure to blue-chip tech, I’m willing to invest in some low-yield picks. They can be offset with some REITs, MLPs, or other high dividend stocks, to keep the overall portfolio yield above 3.5%-4%.
Norfolk Southern (NSC)
Norfolk had a stock price of $75 as recently as September, but now it’s down to $57, with a P/E of slightly over 10 and a dividend yield of 3.51%. Their peer, CSX Corporation, had the same fall in stock price and has roughly the same valuation.
The reason is coal. Norfolk’s other operations are strong, but coal shipping has had weakness in 2012, and this commodity accounts for nearly a third of Norfolk Southern’s business. Norfolk Southern is one of the largest railways in the United States, with track spreading out all across the eastern half of the country.
According to the Gordon Growth Model, much like McDonald’s, Norfolk Southern only has to boost the dividend by an average of 6.5% per year in order to justify the current share price to result in likely 10% long-term annualized returns. Despite the lower valuation, there appears to be a lack of margin of safety here, as that’s about the rate that the company is growing their dividend at. The stock price reduction appears to have brought the valuation down to a rational figure, and the price looks fair going forward.
Fortunately, when there’s no margin of safety, you can create a margin of safety by selling put options. January 2014 put options at a strike price of $57.50 allow an investor to potentially buy into the company with cost-basis of around $50/share.
Vodafone (VOD)
The U.K.’s global telecommunications company, Vodafone, is having currency issues. Their home currency continues to strengthen against many other currencies, and when this happens it’s a headwind for any global business. Vodafone’s ADR peaked at $30/share in August but has since dropped to a bit over $25/share.
It’s the goal of value investors to buy stocks when the consensus isn’t rosy, when the story isn’t perfect, and when other investors are unsure. It’s easier to say than do, and to avoid mistakes, diversification alleviates the pressure of being right every single time. With Vodafone’s large exposure to the debt-filled eurozone, and with other European telecom companies cutting their dividends, it’s tempting for Vodafone investors to flinch right about now.
But Vodafone has strong global operations. Their best asset, in my view, is their 45% stake in Verizon Wireless. Vodafone holds considerable market share in the the UK, the US, continental Europe, Africa, and India. One issue Vodafone currently faces with its dividend is that their Verizon Wireless dividend is partially out of their control. Verizon Wireless can pay a multibillion-dollar annual dividend to its two shareholders, Verizon Communications and Vodafone, but as the minority shareholder, Vodafone doesn’t have complete control over these payment decisions. The capital could be used for expansion or debt-reduction instead. Fortunately, Vodafone will be receiving the Verizon Wireless dividend this year. It’s a high-yield telecom stock I’m willing to hold through somewhat uncertain times.
McDonald's performance in 2012 has been a bit of a mixed bag. In the first quarter, it posted a solid 7% revenue and profit versus prior year levels. MCD's solid performance was due to a strong 7.3% same-store sales growth rate achieved in Q1 2012 and was partially offset by currency headwinds due to the strong US Dollar. In Q2 2012, its performance was a bit flat as its comps receded to 3.7% during the quarter and negative year-over-year effects from currency were greater in Q2 2012 than in Q1 2012, resulting in an EPS decline of 2%. These trends were exacerbated in Q3 2012 as the company's comps declined to 1.9% during the period and its operating income declined by 4% year-over-year. Although negative currency headwinds impacted the company's performance in Q3 2012, we are concerned about the deteriorating same-store sales growth performance as same-store sales (comps) are measured on a constant currency basis.
Regency Energy Partners LP (RGP)
While not really a blue chip, at nearly 20% off its 52-week highs, and with an 8+% yield, Regency is an intriguing partnership. Nearly $1 billion worth of organic capital projects are expected to come online in 2013, but the current high yield is rather shaky in terms of the current cash flows.
The whole structure is rather complex and highly leveraged. Energy Transfer Equity (ETE) owns the general partner of Regency, as well as other assets. ETE’s distribution has been held steady for six quarters, and their underlying partnerships ETP and RGP have held flat distribution as well. Personally, the only way I’d invest in this structure is to go with ETE itself, as it holds the general partner units and the Incentive Distribution Rights. This investment itself should be understood as on the risky side compared to typical dividend/value holdings, but with appropriate diversification it could pay off over the long-term.
Full Disclosure: As of this writing, I am long MCD, IBM, VOD, and ETE. I have no positions in NSC, VZ, or YUM, and no direct position in RGP. You can see my dividend portfolio here.
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