NEW YORK (TheStreet) -- Shares of McDonald's (MCD) were gaining 1.8% to $90.02 Tuesday amid rumors that an activist investor is looking to take a stake in the fast food chain and pressure management into making changes.
According to Street Insider, activist investor Bill Ackman is rumored to be interested in investing in the company and spinning off real estate assets into a REIT. The publication notes the rumor "is likely trading desk fiction," however.
Ackman previously tried to convince the fast food company to spin-off 65% of its company-owned restaurants in a stock offering in 2005, but ended up backing away from the company when it announced a plan that included a $1 billion buyback and licensing 1,500 restaurants instead.
Separately, this week McDonald's told Reuters that it was forced to ration French fries in Japan due to labor disputes at ports on the U.S. West Coast delaying potato shipments. The fast food chain is only serving small portions of fries in the Asian country.
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 number of 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."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, MCDONALD'S CORP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- 44.29% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 15.29% compares favorably to the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.3%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Even though the current debt-to-equity ratio is 1.11, it is still below the industry average, suggesting that this level of debt is acceptable within the Hotels, Restaurants & Leisure industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.07 is sturdy.
- MCDONALD'S CORP's earnings per share declined by 28.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, MCDONALD'S CORP increased its bottom line by earning $5.56 versus $5.36 in the prior year. For the next year, the market is expecting a contraction of 11.2% in earnings ($4.94 versus $5.56).
- You can view the full analysis from the report here: MCD Ratings Report