Investors didn't seem too impressed by McDonald's
True, fourth-quarter profit did drop at McDonald's. Net income fell 23% to $985.3 million, or $0.87 per share. However, bear in mind that last year's fourth-quarter earnings were boosted by a $0.33 per share tax benefit. Operating income increased 11% to $1.50 billion.
Revenue dipped 3% to $5.57 billion, with the decline resulting from a weaker dollar. However, McDonald's comps continue to be impressive, despite these difficult economic times. Global comps surged 7.2%, with U.S. comps up 5%, Europe up 7.6%, and Asia/Pacific, Middle East, and Africa up 10%.
Rivalry from other quick-stop restaurant companies like Burger King
McDonald's has drifted away from its 52-week high of $67, and it's currently trading at 15 times earnings. That may sound like a premium compared to so many retail and restaurant stocks that are trading at single-digit multiples these days (I just noticed high-end restaurant stock Ruth's Hospitality
After all, some of these supposedly cheaper stocks are cheap for a reason, as they struggle in the current economic climate and may have other troubling issues, like too much debt. (For example, Ruth's Hospitality recently said it probably won't be in compliance with one of its debt covenants, so there's a good reason for the low multiple.)
The coming year may present some difficult comparisons for McDonald's, considering it has excelled for several years running. However, I believe there is still gold in the Golden Arches, given its competitive strengths; it's a solid defensive stock in these troubled times.
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