Ratings Point to McDonald's (MCD) as an Appetizing Buy

NEW YORK (TheStreet) -- McDonald's Corp  (MCD) is trading higher before the bell Thursday after receiving an upgrade from Morgan Stanley to "overweight" with a price target of $115. The investment bank argues though the company has lagged, the market does not appreciate its competitive advantages. 

A day earlier, UBS initiated coverage on the fast food giant with a "buy" rating and a $107 price target. UBS noted the company's diversified portfolio generates net growth of 3%. 

In pre-market trading, the stock had gained 1% to $96.32.

TheStreet Ratings team rates McDonald's Corp as a Buy with a ratings score of A. The team has this to say about their 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, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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

  • MCD's revenue growth has slightly outpaced the industry average of 0.4%. 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.
  • The debt-to-equity ratio is somewhat low, currently at 0.89, 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 1.00, which illustrates the ability to avoid short-term cash problems.
  • 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 versus $5.28 in the prior year. This year, the market expects an improvement in earnings ($5.56 versus $5.36).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 4.6% when compared to the same quarter one year prior, going from $1,455.00 million to $1,522.20 million.
  • 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% significantly outperformed against the industry average.

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