Is McDonald's Restructuring?

Shhh! Have you heard the latest rumors about McDonald's (NYSE: MCD)?

McDonald's stock rose 2.4% Friday, recorded a new 52-week high, and traded in territory it hasn't traveled since 2000 on the rumor that Pershing Square Capital Management had purchased a 4.9% stake in the company. Pershing, if the name doesn't ring a bell, was the catalyst (really, the activist shareholder) that got Wendy's (NYSE: WEN) to announce it would unload 15% to 18% of its Tim Horton's coffee and donut enterprise in an IPO, repurchase $1 billion of its stock, increase its dividend by 25%, and decrease its debt by $100 million.

Wendy's labeled its moves "comprehensive strategic initiatives to enhance shareholder value." Shareholders remember the 14% one-day gain that news produced -- the biggest one-day rally in 16 years. The reality is that Pershing, which owned 9.9% of Wendy's stock, had the muscle and resources to get action. Now, is it McDonald's turn?

McDonald's is holding an analysts' meeting this Wednesday and Thursday. With the company already poised to discuss its upcoming plans, topics of discussion and interest are as follows:

Rumor #1: Real estate. This is an old rumor, but if you read carefully through the company's SEC filings you'll find these asset jewels. As of year-end 2004, the company owned 37% of the land and 59% of the buildings for its restaurants. Not to mention this gem: Those assets are on the books at cost (so, given real estate inflation, their value is understated).

Remember post-bankruptcy Kmart? Then Sears? The two are bundled together today as Sears Holdings (NYSE: SHLD), but when each talked about capitalizing on its real estate holdings, both stocks headed skyward. Don't expect McDonald's to make any announcements in this area, but with Pershing rumored to be lurking, the company is certainly going to be questioned about optimizing its return on its real estate assets.

Rumor #2: Chipotle Mexican Grill. In Dec. 2003, McDonald's sold Donatos Pizzeria so it could focus on its Chipotle and Boston Market brands. A year later, McDonald's was saying it was considering options for its 90%-owned, 460-store Chipotle chain. While a sale, spinoff, or IPO are all possibilities, investors would welcome any McDonald's action to quickly monetize the company's investment in this fast-growing Mexican restaurant. While it's probably too early to expect a plan, it's not too early to expect an update on just what options the company is considering.

Rumor #3: Golden Arches growth. The long-term goals are 3% to 5% sales growth, 6% to 7% operating income increases, and returns on invested capital in the high teens. Expect the company to acknowledge that recent growth rates have decelerated but that, based on the long-term targets, they're doing just fine.

Would you like fries with that?
Rumors are flying, but McDonald's stock is still trading at 17.8 times earnings. That's hardly bargain territory for a company that analysts expect to grow earnings 8.6% annually for the next five years. For comparison, that's 2% less growth per year than is expected for the S&P 500.

Fool contributor W.D. Crotty owns shares in McDonald's. Click here to see The Motley Fool's disclosure policy.