McDonald’s

November 13, 2008

Ticker: MCD

About

I usually start with an "about" the company section. So when I was organizing my thoughts today – I was like – Really!!! Does good ol' Mickey D need an introduction??? I didn't think so either.

That said let's see if you knew this about Mc Donald's –

• Antarctica is the only continent without a McDonald's
  
• They serve over 46 million people everyday
  
• Some of the busiest locations are not even in the US (they are in Hong Kong)
  
• Pink, Sharon Stone, and Shania Twain all worked for this company
  
• McDonald's opens a new restaurant every four hours
  
• McDonald's largest market outside the U.S. is Japan, with more than 3,000
  McDonald's restaurants
  

The list of "Fun Facts" continues. But is it really just that – just "Fun Facts"? Not if you are a smart investor. For a smart investor – each of these facts translates into a potential investment "GO" in itself (I know - Shania Twain does not help much here). Then it should not come as a surprise that Jim Skinner, the head of the fast food company said, "Worldwide turbulence is barely affecting our business." (Reuters). In my opinion, their belief that they are nearly shielded against recession is well justified – let's see if the numbers support the claim.

Earnings

A look at the earnings figures -

Earnings	Actual	Analyst Estimates	Surprise
Q3 2008	$1.05	$0.98	$0.07
Q2 2008	$0.94	$0.86	$0.08
Q1 2008	$0.81	$0.70	$0.11

Not much I need to say there, but I will say this – the last time Mc Donald's trailed the quarterly earnings estimates was Q3 2006 – by 1/10^th of a cent – make what you can of it – even if you are from the statistically inclined tribe.

A look at the Vital Stats

The cash flow is very decent as well – with the CPS at $1.10 for Q2 2008 – better than it was for the corresponding period in 2007. The margins are much better than the industry average - MCD's Gross Margin is more than 71% of other companies in the restaurants industry, which means it has more cash to spend on business operations as compared to its peers. Also the operating margin indicates that MCD controls its costs and expenses better than 99% of its peers –positively a sign of good financial health in the hands of an efficient management. The management efficiency is further supported by the asset turnover ratio (0.82%) and inventory turnover ratio (130%) – indicating a strong ability to ability to move inventory and generate sales.

MCD's EPS growth rate is greater than 96% of its peers in the restaurants industry – and it pays a dividend of around 3.5%.

I don't know about you but I think I got enough reason to get MCD big time on my watch list – with the icing that it is currently trading about 20% below its 52 week high. So then, I rest my case with a few more "fun" facts –

• MCD has one of the highest ranked consensus scores of the restaurants industry
  
• MCD's consensus score is higher than 99.7% of the Services Sector
  
• MCD's consensus score is higher than 99.6% of the Jaywalk Universe
  
• Rated by Thomson Reuters to Outperform
  
• Included in the S&P 5 Star Portfolio