Welcome to the Stock of the Day.
For over the past year or so, McDonald’s (MCD) has been stuck in a rut as some of the world’s hottest emerging markets cooled down. But Tuesday morning’s Q1 earnings report suggests that McDonald’s could have a stronger second quarter. What’s the story behind the Golden Arches? Let’s find out.
Everyone knows the McDonald’s name and the golden arches; the burger chain has been a staple of the American culture for seven decades. There are nearly 14,000 McDonald’s in the U.S., but the company’s massive international operations remain the key to steady sales growth.
To date, the company operates over 35,000 restaurants across 119 countries. The stock currently yields 3.2%, but as I’ll discuss shortly, yield seekers may want to think twice before sinking their teeth into this stock.
The fast food giant announced that it earned $1.205 billion on $6.7 billion in the first quarter. Compared with the year ago quarter this represents a 5% decline in earnings and a 1.4% increase in sales. Adjusted earnings were $1.12 per share, which missed the $1.26 consensus EPS estimate by 4%. McDonald’s sales also missed analyst estimates of $6.73 billion in revenue by a hair. The company posted 0.5% comparable stores growth across locations around the world.
According to management, McDonald’s is working to stabilize its core markets, including the U.S., Germany, Australia and Japan. The company expects modest comparable sales growth in the second quarter, but that’s simply not enough to warrant a buy recommendation from me.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This Conservative stock has been in a rut for the past year and one look at its stock report reveals why.
To start, institutional buying pressure has remained weak; MCD currently receives a D for its Quantitative Grade. On the fundamentals side, MCD could also use some work: Of the eight fundamental metrics I graded this company on, only return on equity received a good grade (A).
The other seven fundamentals, including sales growth, earnings growth and cash flow, all received C- or D-ratings. So MCD receives a C for its Fundamental Grade.
Bottom Line: As of this original posting on April 22, I consider McDonald’s stock a C-rated Hold.