E Is McDonald’s A Good Buy Right Here?

McDonald’s (MCD) is the largest publicly traded restaurant company in terms of market capitalization ($140 billion), way ahead of peers such as YUM! Brands (ticker: YUM) or Starbucks (ticker: SBUX).

McDonald’s has been a great investment in the past, as the company has produced consistent growth (earnings, share price, and dividends) for decades, easily outpacing the returns of most other restaurant companies. This is, at least partially, due to the fact that McDonald’s has very apt management, including CEO Steve Easterbrook.

Company Overview           

McDonald’s operates several thousand restaurants itself, on top of that the company franchises its restaurant concept to a multitude of franchisees all around the globe. McDonald’s was founded in 1940 and is headquartered in Oak Brook, Illinois. McDonald’s has raised its dividend annually for more than 25 years in a row, which makes the company one of the Dividend Aristocrats.

McDonald’s has reported its most recent quarterly results on October 23. The company generated revenues of $5.4 billion during Q3, its earnings-per-share totaled $2.10 during the quarter – an increase of 19% year over year. McDonald’s comparable restaurant sales rose by 4.2% year over year, vastly outpacing the growth of the restaurant industry.

Growth Prospects       

McDonald’s has a great growth track record. The company was able to more than double its earnings-per-share over the last decade, before that its growth rates were even stronger.

McDonald’s recent refranchising strategy has lowered the company’s overall revenues, but allowed for higher margins and improved the cash generation (due to lower capital expenditure requirements). Through the opening of new restaurants (franchised or company-owned), as well as due to rising comparable store sales, McDonald’s should be able to deliver mid-single-digit revenue growth in the long run.

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