No Solution at McDonald's

It's tough not to be impressed by the performance at McDonald's (NYSE: MCD  ) . Unless, that is, you read the cringe-worthy corporate jargon of CEO Jim Skinner, in which case you might feel a bit queasy.

But let's start with the good: Worldwide sales for May increased 11.9%, with same-store sales or "comps" climbing 7.4% in the U.S. and 8.9% in Europe. We like increasing comps, of course, because it usually means that a company is going to be able to "leverage" costs and eke out increasing profit margins, as prices for things like store overhead, labor, and corporate overhead consume a smaller portion of overall revenues.

That's been the kicker for McDonald's shareholders ever since the company came back from the dead a few years back, proving that competitors like Yum! Brands (NYSE: YUM  ) , Wendy's (NYSE: WEN  ) , Burger King (NYSE: BKC  ) , Sonic (Nasdaq: SONC  ) , and Jack in the Box (NYSE: JBX  ) had not finished off the quickserve pioneer.

But let's lash CEO Skinner with a wet noodle for this unintentional side splitter from the press release: "May marks another month of strong sustained sales and shows how well we are providing solutions for today's busy lifestyles ... "

Solutions?
Dude? I mean Mr. CEO dude? You need to review this important article from America's Finest News Source. I don't stop at McDonald's for "solutions." I stop there for tasty-if-predictable food that, unlike the random slop down the road, won't have me speeding toward the rest stop 10 miles down the road in search of an emergency solution for gastrointestinal distress. But enough on my road trip troubles.

Is this good enough news to warrant buying the stock? These days, McDonald's no longer looks like the bargain it's been in years past, as it's trading at earnings multiples that exceed its three- and five-year historical norms. However, evaluated on a discounted cash flows basis, based on my best growth guesses, I find the current price to be just a bit cheaper than fair -- about an 8% margin of safety. Given that McDonald's price point seems to make it relatively safe in a time of iffy economic outlook, such as now, McDonald's stock, like its food, may provide a relatively palatable "solution" right now, provided your portfolio is hungry and can't find tastier alternatives.

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At the time of publication, Seth Jayson has a position in Yum! Brands. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.


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