MCDONALD’S CORP. $117(New York symbol MCD; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 918.2 million; Market cap: $107.4 billion; Price-to-sales ratio: 4.2; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.mcdonalds.com) plans to sell 4,000 of its company-owned outlets to franchisees. As a result, franchisees will operate 93% of the chain’s 35,000 restaurants by 2018, compared to 81% today. This will lower the company’s operating expenses and free it from maintaining and upgrading these outlets.
In addition, McDonald’s plans to cut $500 million a year from its administrative costs by the end of 2017.
To put that goal in perspective, the company earned $4.5 billion in 2015, down 4.8% from $4.8 billion in 2014. Earnings per share fell just 0.4%, to $4.80 from $4.82, on fewer shares outstanding. If you disregard unfavourable currency exchange rates, earnings gained 5%, while per share earnings rose 10%.
Sales declined 7.4%, to $25.4 billion from $27.4 billion. However, same-store sales improved 1.5%. That’s partly due to the launch of the all-day breakfast menu in the U.S.
McDonald’s plans to spend $30 billion on dividends and share buybacks in the three years from 2014 to 2016. That’s up from its earlier goal of $20 billion. It will have to borrow the funds it needs, which will add to its long-term debt of $18.0 billion (as of September 30, 2015). That’s a moderate 17% of its market cap.
The company also raised its quarterly dividend by 4.7%, to $0.89 a share from $0.85. The new annual rate of $3.56 yields 3.0%. McDonald’s has increased the payout each year since 1976.
The stock has gained 24% in the past year, and now trades at 21.7 times McDonald’s projected 2016 earnings of $5.40 a share. That’s an acceptable multiple in light of the company’s high market share and wellknown brand.
McDonald’s remains our top choice among fastfood stocks, as Yum Brands and Restaurant Brands will likely make little progress until they complete their recent restructurings.
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