McDonald’s Earnings Preview: Q408

McDonald’s [[MCD]] is scheduled to report fourth quarter 2008 results before the market opens on Monday, January 26. Based on our analysis, we at are expecting MCD to report better than expected results that beat Wall Street’s expectations.


Analyst Expectations

We are forecasting revenues of $5.75 billion and EPS of $.85. This would represent flat revenues from last year’s $5.75 billion in the same period. The current analyst consensus calls for revenues of $5.70 billion and $.83 EPS.


In this challenging economy, consumers are clearly looking to trade down at every opportunity. Families that in the past would have eaten out a more formal restaurant are now trying to save money by eating fast food instead. The fast food chains are also trying to evolve their image and present healthier choices on their menu’s. McDonald’s has capitalized by emphasizing both their healthy options as well as their value menu.


In addition, we expect to start seeing some additional lift as the new McCafe’s are rolled nationwide. Specialty coffee drinkers are also looking to trade down and McDonald’s is looking siphon customers away from Starbucks by offering similar drinks at a cheaper price. Choosing McDonald’s over Starbucks generally saves consumers between 15-20% – which is very significant in our cost-conscious economy.


Despite higher food costs and an accelerating U.S. dollar, we would expect McDonald’s performance to continue to be strong in 2009.


Share Performance

McDonald’s shares are down 8% since the beginning of the year. Last year, they were one of the Dow’s leading performers and one of few stocks that posted a gain last year – increasing over 5%.



Shares are now trading at 15x consensus 2009 EPS estimates. This is a relative premium to their peer group and reflects the stocks relative performance over the last few years.  


Recommendation: Hold with a $55 price target.


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