Tuesday, 21 October 2014

What's the price to buy some McDonald's shares?

I actually popped into a McDonald's yesterday.  The queue was a little longer than usual despite the best efforts of the staff.  Still within a couple of minutes I had my cheeseburger and life was good.

Life is less good for a McDonald's shareholder today.  The shares look set to open around the US$90 level where they have not sustainably been for a couple of years now:

Now you can understand why.  Just look how the company opens up its latest quarterly numbers:

"McDonald's third quarter results reflect a significant decline versus a year ago, with our business and financial performance pressured by a variety of factors - from a higher effective tax rate, to unusual events in the operating environments in APMEA and Europe, to under-performance in the U.S., our largest geographic segment," 

That's not good.  And neither are some of the leading statistics around the numbers: 

'Global comparable sales decrease of 3.3...Consolidated operating income decrease of 14%...Diluted earnings per share of $1.09, a decrease of 28%'.  At least US$4.5bn worth of shares (5% of market cap) has been bought back this year plus you get a dividend yield of around 3.5%.  

So US$8bn of operating profit today with lots of issues...and of course lots of initiatives ('A flatter, more nimble organization...A revamped marketing approach that links national messaging around our food quality, brand transparency and people initiatives...A simplified menu that showcases the Company's core products') too.  

A single digit EV/ebit would be over 20% down from here.  Hold for yield if you wish, hold for persistence and franchise value maybe too but holding for belief in the growth profile is still a big stretch.  I am still not at the price where I am reaching to buy McDonald's shares.  

Now their food products on the other hand...!

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