McDonald's Serves Up CEO Change

Updated from 3:19 p.m. ET to include closing share price, volume information.

NEW YORK ( TheStreet) -- Are you still lovin' it?

That's the question facing McDonald's ( MCD) investors on Thursday following news that Jim Skinner, the company's chief executive officer since November 2004, plans to retire this summer. Skinner, who also chairs Mickey D's board, is hanging up his fry basket, effective June 30, with Don Thompson, the current president and chief operating officer, taking over the top job.

The choice of Thompson was pretty straightforward for McDonald's as he's been a key part of the success the company has enjoyed during Skinner's tenure. Before being named to the president and COO roles in January 2010, Thompson was the president of McDonald's USA for four years, and, as the company put it, was "responsible for the strategic direction and positive business results of the nearly 14,000 restaurants in the U.S."

McDonald's, of course, saw a renaissance in its U.S. business during that time, successfully updating its menu with smoothies, a variety of coffee drinks, expanded breakfast items and more healthy choices across the board. The past two years have seen the overall company post impressive top-line growth of nearly 20% with revenue totaling $27 billion in 2011, up from $22.7 billion in 2009, and the U.S. business continues to outperform the rest of the company.

Wall Street has rewarded McDonald's for that performance, sending the stock up 30.7% in 2011, the best performance within the Dow last year, but the shares have been left behind somewhat in 2012, losing nearly 4% even as the broad market has continued to rally off the October lows.

Oppenheimer wasn't fazed in the slightest by the succession news, saying: "The departure of Mr. Skinner has no impact on our investment thesis or outlook for fundamentals."

The firm, which has a perform rating, the equivalent of a hold, on McDonald's shares, acknowledged the significance of Skinner's achievements and feels that Thompson is certainly up for the job.

"Mr. Skinner leaves an unmatched legacy as he strategically designed and implemented MCD's historic turnaround which drove 21% annual shareholder returns under his leadership," Oppenheimer wrote in an intraday research note on Thursday, adding later: "We believe Mr. Thompson is an excellent choice to carry forward the principles Mr. Skinner grounded."

The market reaction to the news was fairly muted with McDonald's shares closing down 92 cents, less than 1%, at $95.80. Volume totaled 7.7 million vs. the issue's trailing three-month daily average of 5.4 million. The stock has slumped roughly 6% since hitting a 52-week high of $102.22 on Jan. 20, and currently trades at a forward price-to-earnings multiple of 15.2X. That compares to a multiple of 13.4X for the S&P 500 as of Friday's close.

At current levels, the multiple on McDonald's shares is below both 18.9X for Yum! Brands ( YUM), whose brands include KFC and Taco Bell; and 22.8X for Wendy's International ( WEN), which surpassed Burger King as the no. 2 U.S. burger chain earlier this week.

Mickey D's also wins the dividend comparison with a 2.9% forward annual yield vs. 1.6% for both Yum! and Wendy's.

The sell side was modestly bullish ahead of the news with 19 of the 29 analysts covering McDonald's at either strong buy (6) or buy (13) and the rest viewing the shares as a hold. The 12-month median price target sits at $108.

McDonald's is slated to report its first-quarter results on April 20, and the average estimate of analysts polled by Thomson Reuters is for a profit of $1.23 a share on revenue of $6.54 billion.

There is some concern in the market about margin pressures in Asia and Europe though as voiced by Sterne Agee on March 9 after McDonald's reported global same-store sales growth of 7.5% in February.

The 11.1% comps increase in U.S. stores, thanks to strong demand for its Chicken Bites product, was a positive but McDonald's performance fell short overall, Sterne Agee said, as the results in both Europe and Asia missed the mark, coming in at 4% and 2.4% respectively vs. the firm's estimates of 8.5% and 9%. The firm reiterated a buy rating and $112 price target on the stock but said McDonald's may have telegraphed some concern about its bottom line in the first quarter.

"In the release, management provided cautious commentary for operating income growth expectations in 1Q, given economic uncertainty, austerity measures in Europe and commodity and labor cost pressures primarily in the U.S.," the firm said. "While management's comments were not materially different from prior commentary, we view the fact that it was reiterated as a potential hint that consensus expectations (presently $1.24) are slightly too high."

With the company giving Wall Street plenty of lead time ahead of the change in the C-Suite, Thursday's weakness in the stock is likely attributable more to the fresh worries about the economic health of both the Eurozone and China that have the broad market on pace for a third-straight decline.

Investors should be looking to the first-quarter conference call, though, for the beginnings of an indication of what direction Thompson plans to steer the ship when he takes over. Thompson's appointment is definitely of the "more of the same" variety -- and given the company's track record over the last few years, that's a good thing -- but he also faces a different set of challenges than Skinner did, namely maintaining strong growth, rather than revitalizing a venerable brand.

Check out TheStreet's quote page for McDonald's for year-to-date share performance, analyst ratings, earnings estimates and much more.

-- Written by Michael Baron in New York.

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