NEW YORK (TheStreet) -- Expectations were low before McDonald's (MCD) - Get McDonald's Corporation Report reported fourth-quarter and full-year earnings Friday, but there were also plenty of reasons for investors and traders to love the stock.
So now that the company has reported slightly "less bad" results in U.S. same-restaurant sales, the reasons are now more compelling. Take a look at the chart.
Each of the metrics above suggests McDonald's shares, despite the company's feeble outlook, had lower risk and greater reward potential.
Leading up to Friday's report, the stock has lost more than 8% of its value in the previous six months and had fallen more than 12% below its 52-week high. Plus, the shares were down 3% in 2015, compared with the Dow Jones Industrial Average (DJI) and the S&P 500 (SPX) , which have traded flat.
Considering its shares were just 3% above their 52-week low of $87.62, McDonald's had a nice support cushion. This is because its lowest analyst 12-month target stands at $89 per share, 2% below where the stock was trading ahead of the report. Not to mention, all of the bad news impacting the stock was already priced in, including weakness due to a stronger U.S. dollar and the food-scare issue in China.
Here's how to play it going forward, especially with its yield 3.74%.
The stock has an average 12-month price target of $95.50, which is 4.5% higher from Thursday's close. This target is based on the company's projected 5% annual growth rate for the next five years, according to CNN Money. But with the company beating fourth-quarter same-restaurant sales in the U.S. by 40 basis points, it suggests that some of its efforts are beginning to work.
Investors should buy McDonald's stock now. While the company is ramping up its spending to better compete with Chipotle Mexican Grill (CMG) - Get Chipotle Mexican Grill, Inc. Report , its 2015 capital expense budget of $2 billion is still at a five-year low. This means McDonald's is saving money even though it's working to become more competitive. Those earnings should reflect in the bottom line in 2015.
Assuming McDonald's U.S. same-restaurant sales continue to improve (+1.6 percentage points sequentially), analysts will have to revise their earnings growth projections to factor in the company's quicker-than-expected recovery.
McDonald's, which has a high target of $110, appears beaten up but things may not be as bad as they seem. Its recovery is not going to happen overnight. But the stock is cheap at 16 times forward 2015 estimates of $5.38, given its lower capital expenditures and improving U.S. same-restaurant sales.
TheStreet Ratings team rates MCDONALD'S CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate MCDONALD'S CORP (MCD) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
You can view the full analysis from the report here: MCD Ratings Report
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.