This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

McDonald's Now on the Value Menu

NEW YORK ( TheStreet) -- Shares of McDonald's (MCD - Get Report) have been under pressure -- losing as much as 5% ever since the fast food giant reported second-quarter earnings results.

Although Mickey-D's golden arches have long been the golden standard in the U.S. quick-service space, the tough consumer spending environment, which has also hurt strong brands like Coca-Cola (KO - Get Report), has shown no favorites as same-store sales continue to disappoint. Consequently, so has the stock, which is down almost 10% since April.

I'm not going to deny that McDonald's has underperformed. But given the company's size and scale, we need to keep things in perspective.

I'm reading articles suggesting that analysts are no longer "loving McDonald's." But this is not a situation where the company is losing market share.

Sales do need to improve. But that's also the case at rival restaurants like Yum! Brands (YUM - Get Report), which, like McDonald's, posted 1% growth in same-store sales for restaurants open for at least a year.

What's more, both companies trend neck-and-neck, including posting similar 1% growth in U.S., while experiencing soft sales in the rest of the world.

The fact that consumer confidence has yet to fully emerge out of its pre-recession slump is a concern. I believe this has taken a toll on not only McDonald's, but even Wal-Mart (WMT - Get Report) has seen a reduction in store traffic.
[Read: <a target="blank" data-add-tracking="true" href=""><em>The Deal: The Trouble With Being United</em></a>]

And as with Wal-Mart, revenue growth alone is not always an accurate indicator of how well McDonald's is actually performing, especially given that it's one of the largest franchisors in the business.

Still, as you can imagine, with such meager sales results, profitability is certain to take a hit. Here too, I believe McDonald's struggles with profitability have been exaggerated. There's no denying that margins have been under pressure.

As we have seen with Chipotle Mexican Grill (CMG - Get Report), rising costs of protein can add pressure on menu items. But McDonald's has been through much worse.

And let's not discount the fact that even though operating margin declined in the recent quarter, the company still posted a 2% increase in operating income. Essentially, amid rising food and labor costs, management still figured ways to squeeze a strong profit, helped by efficient cost controls.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CMG $576.62 0.00%
MCD $114.23 0.00%
KO $43.15 0.00%
YUM $72.96 0.00%
WMT $59.89 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs