Why McDonald's Will Keep Winning

The Golden Arches took a big hit the other day when it released February sales figures. Yet, despite coming in shy of analysts' estimates, it's been crushing the competition for a while now. After being the top performing Dow stock of 2011, I wanted to dig in and see whether McDonald's (NYSE: MCD  ) has what it takes for a repeat performance, or whether it's run out of steam.

McDonald's value menu offerings really helped buoy it in the recent Great Recession. As consumers pared spending, fast-food vendors such as McDonald's outran other, more conventional (read: expensive) restaurants. The company's share price has reflected this, and climbed more than 31% from a year ago, slightly outperforming giant Yum! Brands (NYSE: YUM  ) , owner of KFC and Taco Bell, no slouches themselves at 28% year-over-year growth. Five-dollar-a-gallon gas could actually help Mickey D's. They expect the renewed belt-tightening by consumers to send customers scurrying away from full-service restaurants such as Darden Restaurants' (Nasdaq: DRI  ) Olive Garden and Red Lobster locations and right into the McDonald's drive-thru.

New ventures will keep the momentum going
In order to keep the good times rolling, McDonald's is going forth and multiplying its brand, particularly in China. Currently, McDonald's has more than 1,400 restaurants in that country and is looking to open up to 250 more this year. In addition, the company is looking to export its franchising business model from the U.S. to China as well, where the McDonald's sites are now operated by the company. In other marketing news, McDonald's is also pushing the brand's quality to Chinese consumers, featuring a television advertising campaign scheduled to begin this summer.

In Japan, the fast-food giant is also unveiling some delectable, American-style treats: large hamburgers, with an equally hefty calorie count, named after various American states. Though trimming the fat at its American sites, the company expects the new menu items to reap oversized rewards in the Japanese market.

Fool's take
Even though McDonald's worldwide same-store sales came in a bit under analysts' expectations for February, it is important to note that its global same-store sales were stellar at 7.5% -- quite a jump from January's 6.7%.  The company's sizzling growth in 2011 shows no sign of slowing, and the company's commitment to duplicating its successful franchise model in China bodes well for revenues in Asia. McDonald's even managed 4% growth in Europe, quite a feat considering the harsh weather and even harsher economic climate that part of the globe has been experiencing lately.

Decades of success speak for themselves, and the new ventures overseas show clearly that McDonald's is not content to sit on its laurels and expect continuous profits to roll in by themselves. While many reacted to McDonald's recent miss by selling off the stock more than 3%, the slight drop may just make it the bargain many investors seek.

If you like big players that aren't afraid to take profits to new heights, then chew on this, "3 American Companies Set to Dominate the World," a free Motley Fool report that will have your mouth watering.

Fool contributor Amanda Alix owns no shares in the companies mentioned above.

The Motley Fool owns shares of Darden Restaurants. Motley Fool newsletter services have recommended buying shares of McDonald's and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2012, at 11:34 AM, rfsindg wrote:

    Thanks for keeping some perspective. After MCD announced 7.5% revenue growth in Feb., the trading fools start running for the exits!?? MCD is a well run company achieving excellent results in a wobbly world economy. Who else has this kind of growth? Stay the course, I'm a stockholder and you should be too.

  • Report this Comment On March 12, 2012, at 6:23 PM, f4ftrjoc wrote:

    I AM INTERESTED IN YOUR MCD THOUGHTS, AS I AM THINKING TO SELL MY MCD AND PUT THOSE FUNDS IN TO: MSFT AND BRCM...I AM HOLDING LARGE SUMS IN AAPL AND BIDU

    WELCOME OTHER'S THOUGHTS!

  • Report this Comment On March 12, 2012, at 8:00 PM, FoolishLonghorn wrote:

    I owned McDonalds throughout 2011,and sold it in January. Did not want to pay that big cap gain this year.

    An effective analysis without mentioning the current price is worthless.

    McDonalds trades at a P/E ratio just north of 18. After a 31% gain, can you really argue that McDonalds is likely to gain more than the average stock in 2012? High expectations are baked into the current price and the recent drop shows that.

    And if you sold McDonalds in early January and bought an S&P 500 index fund, you'd be 12% ahead.

    McDonalds did really well in 2011, as did many large cap/big dividend stocks.

    Personally, I am rotating into smaller companies with decent dividends and great growth opportunities. But I am still hanging onto some of the big caps with much lower P/Es, such as Intel.

  • Report this Comment On March 12, 2012, at 8:58 PM, ccolemaninc wrote:

    But isn't this about long term investing? If you look at MCD through 2017 or more, rather than just 2012, then a drop like this recent one is definitely an opportunity to own (or take more) of one of the best overall performing companies out there, not to mention one of the greatest American companies in history.

    But wait until it starts bouncing back up before buying. Don't buy on the way down...

  • Report this Comment On March 12, 2012, at 9:21 PM, jdwelch62 wrote:

    BTW, Point-Meets-Counterpoint:

    http://www.fool.com/investing/general/2012/03/12/5-reasons-t...

    Be sure to read all the way down and through the Comments...

    :-)

  • Report this Comment On March 12, 2012, at 10:21 PM, lowmaple wrote:

    took a big hit. Sounds like the articles that say a stock SOARED andthey are talking 3%. 10 to 15 % is a big hit. I was hoping for a bigger drop to buy into

  • Report this Comment On March 12, 2012, at 10:38 PM, RayCicak wrote:

    I keep hearing hearing about MCD and YUM in China, which makes sense since it's the largest nation and a booming consumer economy, but don't count out the rest of Asia. I an American living and working in Indonesia (4th largest country population-wise, a member of the G20, and currently one of the strongest currencies in Asia) and I can't drive a kilometer without seeing a KFC, Pizza Hut, McDonalds, or A&W. I own both stocks after seeing how popular the restaurants are here too. There's a lot of growth happening over here, and it ain't just in China!

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