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A McDonald's (MCD) is Coming to a Corner Near You

NEW YORK (TheStreet) -- Prepare to see more Golden Arches aglow as McDonald's (MCD - Get Report) unveiled its plans to add at least 1,500 new locations to its total 35,000 over fiscal 2014, 50% more than over 2012. At the company's investor meeting on Thursday, senior management announced 2014 capital expenditure of $2.9 billion to $3 billion, providing for the openings of between 1,500 and 1,600 new restaurants and 1,000 renovations.

The fast-food joint said it will also add a third drive-thru window in refurbished and new stores in an attempt to curb slow service and reduce customer complaints. Executives admitted service had slowed at U.S.-based restaurants after new menu additions, such as the Egg White Delight McMuffin in June, were rolled out too fast, confusing the workflow.

"The pace of product introduction in my opinion [was] too fast," said President Jeff Stratton during the meeting. "In retrospect, I would have taken more time on that."

The Big Mac maker also reaffirmed its annual target of 3% to 5% system-wide sales growth and operating income growth in the range of 6% to 7%. The company expects commodity costs to increase by at least 4.5% in the U.S. and 2.5% in Europe.

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"We are focused on those things within our control -- evolving to meet changing consumer preferences, investing to build demand, and maintaining our focus on execution and operations excellence," said CEO Don Thompson in a statement.

McDonald's has suffered from slowing sales and growth in recent months, as competitors, such as Chipotle (CMG - Get Report) and Panera Bread Company (PNRA - Get Report), draw customers away with more diverse and healthier menu options.

In the third quarter, the Oak Brook, Ill.-based company reported net income of $1.52 a share, beating Thomson Reuters estimates by a penny. Revenue failed to make the cut, however, up 2% year over year to $7.32 billion, but shy of consensus $7.34 billion. Comparable sales rose 0.9%.

Despite slowed growth, Real Money contributor David Katz advises not to discount the Golden Arches.

"Outside of the short-term frustrations and its recent slow business progress, we think that MCD is poised for better business trends in the upcoming year. The company continues to gain market share," he wrote in his column. 

By midday, McDonald's shares had shed 1% to $96.57. Year to date, the hamburger chain has risen 9.5%, trailing the S&P 500's 25.69% gains.

TheStreet Ratings team rates McDonald's Corp as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about its recommendation:

"We rate McDonald's Corp (MCD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, expanding profit margins, good cash flow from operations and increase in stock price during the past year. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MCD's revenue growth has slightly outpaced the industry average of 0.8%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • McDonald's Corp has improved earnings per share by 6.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, McDonald's Corp increased its bottom line by earning $5.36 a share vs. $5.28 a share in the prior year. This year, the market expects an improvement in earnings ($5.56 vs. $5.36).
  • 45.13% is the gross profit margin for McDonald's Corp which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.78% is above that of the industry average.
  • Net operating cash flow has slightly increased to $2,050.5 million or 2.55% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -17.35%.
  • The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.

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CMG $420.97 0.00%
MCD $126.49 0.00%
PNRA $214.49 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%


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