McDonald’s Earnings Preview: First Quarter 2009

McDonald’s [[MCD]] is scheduled to report their first quarter 2009 results before the market opens on Wednesday, April 22. Based on our analysis, we are expecting MCD to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $5.31 billion and EPS of $.84. This would represent a 5% decline in revenues from last year’s $5.61 billion in the same period. The current analyst consensus estimates calls for revenues of $5.19 billion and $.82 EPS.

 

In February, McDonald’s announced that systemwide sales for McDonald’s worldwide restaurants were up 2.6% for January. However, CEO Jim Skinner cautioned that February sales would be negatively impacted by the fact that 2008 was a leap year (extra day in February).

 

Our checks show that while consumers are clearly looking to reduce their spending wherever possible, they continue to view McDonald’s as an attractive value option. McDonald’s value menu continues to drive traffic to their stores and it appears that the new McCafe’s are also experiencing good success.

 

Share Performance

McDonald’s shares are down 12% since the beginning of the year. Last year, McDonald’s was one of only two Dow components (the other being Walmart) to post a positive gain for the year. McDonald’s shares increased over 5% to easily outperform the 34% decline in the Dow Jones index.

 

Valuation

Shares are now trading at 13x consensus 2010 EPS estimates. This is a well deserved premium to the relative valuations of their peer group. We feel the decline in McDonald’s stock price this year presents investors with a good opportunity to own a franchise that will perform well over the next few years.

 

Recommendation: Buy with a $59 price target.

 

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