McDonald's Corporation Stock Buy Recommendation Reiterated (MCD)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- McDonald's Corporation (NYSE: MCD) has been reiterated by TheStreet Ratings as a buy with a ratings score of A. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income 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.

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Highlights from the ratings report include:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 2.8%. Since the same quarter one year prior, revenues slightly increased by 0.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.84, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.
  • MCDONALD'S CORP's earnings per share improvement from the most recent quarter was slightly positive. 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 versus $5.28 in the prior year. This year, the market expects an improvement in earnings ($5.70 versus $5.36).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Hotels, Restaurants & Leisure industry average. The net income increased by 0.3% when compared to the same quarter one year prior, going from $1,266.70 million to $1,270.20 million.
  • 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.

McDonald's Corporation franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. Its restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. McDonald's has a market cap of $100.0 billion and is part of the services sector and leisure industry. The company has a P/E ratio of 19.00, above the S&P 500 P/E ratio of 18.00. Shares are up 12% year to date as of the close of trading on Wednesday.

You can view the full McDonald's Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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