We remain Neutral on McDonald’s Corp. (MCD) following the company’s mixed third-quarter 2013 results.
Why the Reiteration?
On Oct 21, 2013, McDonald's posted third-quarter 2013 earnings of $1.52 per share, which beat the Zacks Consensus Estimate of $1.50 by nearly 1.3%. Quarterly earnings were also up 6.0% from the year-ago level. Earnings in the quarter received a boost from increase in revenues and share repurchases.
Although its revenues of $7.32 billion grew 2.0% year over year, it fell shy of the Zacks Consensus Estimate of $7.34 billion. Though McDonald’s third quarter global comparable sales (comps) were positive, they were lower than the previous quarter as well as the year-ago quarter. Global comps were up just 0.9% during the quarter versus 1.0% in the second quarter and 1.9% in the year-ago period. Comps growth moderated due to lower consumer spending, resulting from the prevailing macroeconomic weakness.
McDonald’s has become extremely vulnerable to macroeconomic headwinds like debt concerns in Europe, decelerating growth in Asia and intense competition in the U.S. McDonald's expects comps to remain under pressure in the coming quarter as well. For the fourth quarter, global comps are expected to remain consistent with the recently reported quarter. Global comps are expected to remain flat in October.
Despite these concerns, we still believe that the company has strong value. McDonald’s has historically enjoyed moderate growth prospects with its exposure to under-penetrated international markets. Commodity costs are also cooling off in major geographic regions.
McDonald’s currently carries a Zacks Rank #3 (Hold). Others players in the same industry, which look attractive at current levels include Buffalo Wild Wings Inc. (BWLD), DineEquity, Inc. (DIN) and Red Robin Gourmet Burgers Inc. (RRGB), all carrying a Zacks Rank #1 (Strong Buy).
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