McDonald’s Earnings Preview: Fourth Quarter 2009

McDonald’s [[MCD]] is scheduled to report their fourth quarter 2009 results before the market opens on Friday, January 22, 2010. Based on our analysis, we at EarningsPreviews.com are expecting MCD to report inline quarterly results that meet Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $5.96 billion and EPS of $1.02. This would represent a 7% increase in revenues from last year’s $5.57 billion in the same period. The current analyst consensus estimates calls for revenues of $5.93 billion and EPS of $1.02.

 

Earnings Analysis

McDonald’s reported weak same-store sales (SSS) in November, as escalating unemployment began effecting store traffic. It appears that McDonald’s made a strategic misstep as they began pushing premium products like their Angus burgers and McCafe drinks instead of focusing consumers on their value options. Premium burgers and exotic lattes are not resonating very strongly with their customer base given the economic climate. As a result, Burger King [[BKC]] with their $1 double cheeseburger and Wendy’s [[WEN]] $.99 menu are gaining more of the value-conscious consumers.

 

Stock Performance

McDonald’s finished 2009 with their stock price essentially unchanged and underperformed the 19% increase in the Dow Jones industrial average. However, McDonald’s was one of only two Dow stocks (Walmart [[WMT]] being the other) to post gains in the bear market of 2008 and provides investors with a nice 3.5% dividend yield.

 

Valuation

McDonald’s stock is now trading at 14x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. While we are not expecting strong results from McDonald’s this quarter, we still believe that this a blue chip stock that investors should own. They offer a strong dividend yield and are expected to open 150 new locations in 2010.

 

Recommendation: Buy with a $65 price target

 

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