MCD Stock Is Cooked – Store Closures Won’t Save McDonald’s

Advertisement

McDonald’s Corporation (MCD) has been struggling mightily lately. Shares of MCD stock are roughly flat since the end of 2011 while the S&P 500 has tacked on more than 60% in the same period, and McDonald’s sales have been challenged for some time with the rise of “fast casual” brands like Panera (PNRA) and Chipotle (CMG).

McDonald's NYSE:MCDThe reasons behind this aren’t rocket science. Millennials are focused on healthier and fresher food options, and the MCD brand simply isn’t aligned with that. Many big corporations have had to come to grips with this, including Kraft Heinz (KHC) that had to take that artificial neon orange out of its flagship Kraft Original Macaroni & Cheese to get with the times.

But it’s not as simple as just waving a magic wand and calling yourself healthy — something MCD stock holders continue to find out as the company grapples with a complicated menu and consumer tastes that are not in its favor.

McDonald’s, to its credit, knows it needs to change. The company announced a CEO switch in January, and the recent news that MCD will shutter more U.S. restaurants than it opens in 2015 is a sign of that adjustment.

But investors shouldn’t consider this change in the C-suite and a modest decline in restaurants as proof that MCD stock is a good buy.

Sure, the 3.5% dividend is juicy. And yes, McDonald’s is an entrenched mega-cap with more than $90 billion in market value and a brand that is well-known worldwide — as evidenced by the fact that global same-store comps have been a bit better than domestic performance lately.

Of course, that’s what we hope is true. Keep in mind that McDonald’s stopped reporting monthly same-store sales this year, which clearly is a move designed to minimize the pain inflicted on MCD stock by a steady drumbeat of weaker comps.

McDonald’s bottom line still looks good, but the top line is immensely challenged and there is a tough path to growth for this company as it fights against an image as low cost and low quality.

I wouldn’t buy here, and would only hang on if you have a good cost basis with a much bigger dividend yield based on your entry.

A 3.5% annual payout is nice, but won’t cover the declines if this flight of customers continues.

While store closures may help with profitability, they won’t fix the underlying brand issues here for MCD stock.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/08/mcd-stock-mcdonalds-store-closing/.

©2024 InvestorPlace Media, LLC