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TheStreet Open House

BoA Analyst Says Investors Should Eat McDonald's

NEW YORK ( TheStreet) -- McDonald's (MCD) will hold its investors day meeting on Thursday, and even with "modest expectations" for the meeting, this could be a great time for investors to buy the company's shares, according to while Bank of America Merrill Lynch analyst Joseph Buckley.

Shares of the world's largest fast food restaurant chain closed at $97.66 Wednesday. The shares trade for 16.2 times the consensus 2014 earnings estimate of $6.02 a share, among analysts polled by Thomson Reuters. The consensus 2015 EPS estimate is $6.58.

The shares have lagged the market this year, rising 13%, while the Dow Jones Industrial Average has risen 20% and the S&P 500 (SPX.X) has risen 24%.

"MCD shares are relatively inexpensive trading at a 25%-30% discount to quick service restaurant (QSR) peers on a P/E basis," Buckley wrote in note to clients on Wednesday. He also noted the company's significant quarterly payout of 77 cents a share, which works out to a dividend yield of 3.15%.

McDonald's last week reported its global comparable sales in October were up 0.5% year-over-year, with U.S. growth of just 0.2% and growth in Europe of 0.8%. Meanwhile, comparable sales in the company's Asia/Pacific, Middle East and Africa (APMEA) markets were down 2.88%.

The company said that the October figure for the U.S. was "dampened by comparison against the October 2012 Monopoly promotion and ongoing competitive activity." The APMEA decline was mainly driven by "negative results in Japan."

For the third quarter, McDonald's reported net income of $1.552 billion, or $1.52 a share, increasing from $1.455 billion, or $1.43 a share, a year earlier. Revenue rose 2% year-over-year to $21.013 billion in the third quarter.

Buckley expects the company's comments at the investor day meeting -- the first under CEO Donald Thomson, who took over in July 2012 -- to focus on "basic execution, as opposed to something more dramatically new in strategic direction."

The company is going through its fasted expansion of stores in 10 years, with estimated global united growth of 1,200 restaurants, or 3.5%, this year, however, a "meaningful" further expansion "would likely be poorly received by investors," according to the analyst.

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