McDonalds Earnings Preview: Second Quarter 2009

McDonald’s [[MCD]] is expected to report their second quarter 2009 results before the market opens on Thursday, July 23. Based on our analysis, we at are expecting MCD to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $5.86 billion and EPS of $.97. This would represent a 4% decline in revenues from last year’s $6.08 billion in the same period. The current analyst consensus estimates calls for revenues of $5.72 billion and EPS of $0.96.


McDonald’s reported strong global same-store-sales of 5.1% in May. However, Wall Street was disappointed by only 2.8% SSS growth in the U.S. Wile expectations were high given the company’s new McCafe offerings, it appears that traffic volumes continue to be quite strong. McDonald’s value proposition and convenience continues to attract customers in this weak economy.


Despite concerns surrounding the economy, we believe that McDonald’s is well positioned to continue growing their earnings. While initial expectations for the success of the McCafe offerings may have been too high, we believe it is continuing to gain traction. We also view the introduction of the premium Angus burgers as an incremental positive. The premium priced sandwiches could provide a potential lift to average transaction prices in coming quarters.


Share Performance

Since the beginning of the year, McDonald’s shares are down 8%. In 2008, MCD’s shares gained almost 6% and was one of only two Dow components (Walmart being the other) to post gains in last year’s bear market.



Shares are now trading at 13x consensus 2010 EPS estimates. This is a slight discount to the relative valuations of their peer group. McDonald’s has been the top performing Dow stock over the last three years. With a decent 3.5% dividend yield and strong growth prospects we expect MCD to continue to be one of the Dow’s top performers.


Recommendation: Buy with a $65 price target.


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