Billionaire investor George Soros put his money where his mouth was in the final quarter of 2015 when he bought an additional $58 million in McDonald’s Corporation (MCD) stock; this was six times what his fund management business held at the end of September.
What does Soros know that has him so confident about MCD stock?
It can’t just be McDonald’s success with all-day breakfast, can it? Sure, it has been taking market share from other competitors, but that’s not nearly enough to justify blowing so much cash, even for a multi-billionaire.
There has to be more to it … and there is.
The answer lies in its same-store sales history — both recently and further in the past.
First, consider that last October, McDonald’s announced its first U.S. quarterly same-store sales increase in two years. MCD stock is up 16% since then. It carried on in Q4 by delivering its best U.S. same-store sales growth since 2012, up 5.7%, or 300 basis points higher than analyst expectations.
Now, it’s true that all-day breakfast had a lot to do with the growth in Q4 having only been introduced in October, and it’s also true that many investors were calling on McDonald’s to jump on the all-day breakfast bandwagon, including myself back in 2014.
At the time, I argued that fast-food company needed to figure it out sooner rather than later or they were going to lose business to the likes of Yum! Brands, Inc. (YUM), whose Taco Bell division was rolling out a breakfast menu.
McDonald’s replaced former CEO Don Thompson with current boss Steve Easterbrook, and lickety-split, McD’s had all-day breakfast. To the victor go the spoils.
OK, now back to same-store sales, but this time we’ll look a little farther in the rear-view mirror.
MCD stock’s Bright Future
The Wall Street Journal reminded its readers in its Corporate Intelligence feature back in June 2014 that history repeats itself. In this particular instance, WSJ was hypothesizing whether same-store sales at the company’s U.S. outlets were entering a tailspin not seen for more than a decade. In other words, bad things were happening.
I believe Soros has turned that on its head.
In 2003, McDonald’s finally broke out of its same-store sales slump when it announced same-store sales growth of 4.9% in the second quarter of that fiscal year — the highest growth rate in five years.
That sounds eerily similar to what’s happening today.
From Q2 2003 to Q4 2012, McDonald’s delivered positive comps in its U.S. outlets. In that time, MCD stock increased by 419% compared to 76% for the S&P 500.
Could the same thing be happening in 2016? Is McDonald’s ready to go on another multiyear run?
Evidently, George Soros thinks so — and he doesn’t lose very often.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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