Chit Chat Stocks - Fundamental Analysis of McDonald's

Episode Date: February 7, 2019

Fundamental Analysis of McDonald's after their earnings report.  --- Support this podcast: https://anchor.fm/chit-chat-money/support Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

hello and welcome into the fundamental analysis show today we are going to be discussing the fast food giant mcdonald's remember on this show we are evaluating one company and we'll try to be as unbiased as possible mcdonald's just had earnings so we're going to talk about that let's time stamp this for february 2nd 2019 my name is brett schaefer and i'm always here with ryan everyone really knows what mcdonald's does but why don't you tell the listeners about their business yeah so like you just said everybody knows what mcdonald's does but they are probably the world's most recognized fast food chain they were actually founded in 1940 in san bernardino california yeah they have they now have over 36 000 stores worldwide

but interesting fact when they were first starting you know the they have those little billboards yeah under the golden arches they would say how much burgers they served they had served and they It used to be like 100,000. They have now officially served 100 billion burgers. That's a lot. That's a lot of cow. That is a lot of meat, which basically on average means they serve about 75 burgers per second. That's a lot.

Yeah. Wow. A couple good facts there for the listeners, huh? Yeah. All right. Let's get into the stock valuation. a market cap of 136 billion dollars enterprise value of 167 billion according to yahoo finance that is kind of a little subjective do you want to break down what enterprise value is i'm not

sure about the hard definition but i'm thinking that's more of an intrinsic value measurement from yahoo finance they say that it's from them or a multitude of sources so it's kind of just an estimate on their part i'm not really sure it's not really a key thing to take into account but it's kind of interesting that they have it above what the market cap is right now. Trailing P.E. is 23.5. Forward P.E. is 21.5. Profit margins of 28%. Operating margin of 40%.

That's pretty high, especially for a restaurant. Forward dividend yield of 2.6%. This is a pretty big dividend stock. Up 3.5% over the last year, right around the market average, and up 87% over the last five. Also, it might be a little above, a little bit below the market. We don't really know, but the dividend is a lot better than the S&P 500. Yeah, it basically seems like it's kind of tracked the market.

Their price-to-earnings is pretty equal as far as the market average. That's true as well, yeah. So I'll break down some of the earnings that they reported this week. Global comp sales were up 4.4%. And what are comp sales? Comparable same-store sales. So basically how much each store is growing their sales. So each store is growing 4.4% more.

On average. Consolidated revenues decreased 3% and operating income also decreased 7%. Now, those numbers were basically excused for in their earnings release because of their re-franchising initiative that's what they said which basically they have kind of tried to move into they're trying to find different ways of growth because store expansion really isn't the way for them anymore so that's kind of what they use as their excuse so there was some restaurant downtime during the quarter while they remodeled some places they were remodeling a lot of places and it seems like they're trying out a lot of new things as far as how to you know gain more

consumers and a higher check yeah yeah because you don't want revenues and operating income operating income to uh continue to decrease that's not good for business and as an investor no uh fourth quarter earnings per share was a dollar 82 cents full year sales were up 4.5 percent and full year consolidated revenues were down eight percent that's not that's not a great number really no it's not but um let's get into their future growth opportunities uh you want to kick things off sure yeah they have a couple of initiatives one is getting more out of each visit um delivering this is a quote from them delivering sustainable guest camp growth and driving a higher average check which means they want more customers into the store and they want them spending more

on each time they're there which you know restaurants i think always want to do that I think part of the way that they're doing that is through their new mobile ordering process. Now, they've tied that in pretty well with a McDAP, which is code for those in the biz, McDonald's app. Okay. Slang, but McDAP. They've kind of tied those two together pretty well, and they've actually built a little bit of an ecosystem in digital sales that way. Okay. So people don't even have to come into the store to really get their food, and that's nice.

Okay. So how's the interface on the app? Is it easy to purchase, easy to order? It's really easy, and they present you with a lot of good deals. I usually only go to McDonald's for the coffee, but they offer a lot of good deals as far as coffee goes, and they kind of tie that in. Once you see your deal, you can add it to a mobile order, pull up, and they'll bring it right to you outside. But it's like a nice little – it's a nice stop instead of waiting in line. And they're increasing their customer count per like hour a day or whatever.

Yeah, no one wants to wait in line whether it's drive-thru or in-store. And we didn't really see any other like expansion news or any diversification of the business or entering into any new like food categories. So they're kind of just sticking with the status quo, right? I didn't really give any specifics on digital sales and basically digital users, which might be a problem. That might be a bad sign. I like to see that number and kind of transparency in the earnings report. But from what I see – sorry, people are starting to use it a lot more. Yeah.

I mean, yeah, it's kind of subjective to see that. You do want to see the hard numbers. Why don't we get into the highlights and lowlights? I'll go first. my highlight is the brand the brand is one of the number one food brands in the world the golden arches number one one of the number one brands in the world overall yeah and this is it it makes it kind of an all-weather stock so stock market in general goes down typically mcdonald's stays steady you know it's cheap option a lot of people that you know might be

tough on money they're still going to go to mcdonald's my low light is that there is a trend in the worldwide transition to healthier eating and if that continues it won't be great for their business because they don't really have the healthiest products yeah that's if it yeah if like you know if people eat like everyone in california then that might not be great for their long-term business model but that's not going to happen overnight yeah so my highlight is similar to yours it feels like everyone eats mcdonald's rich poor anything in between everyone anyone that enjoys their food eats regardless of social class it seems like so that in that sense they really do weather all the storms as far as the market goes but my low light

uh is that as far as saturated markets go this is pretty much the poster child for that because you can't just keep expanding stores or else you're competing with your other stores yeah it's tough to be optimistic on any real heavy top line growth on this company you're just going to want to see you know share buybacks dividends earnings per share growth and small amount of revenue growth right and some good comp sales and so i guess the real question for as far as growth goes is how do they increase the price of that average check while still maintaining as many customers yeah exactly um is that it for mcdonald's kind of a simple company but i think we got all the numbers down huh yeah that's about it all right so that's gonna do it for us remember to

follow us on twitter as always at chit chat money and at markets bros check us out at market brothers media.com as well for some more content and as always we want to remind our listeners that we are not financial advisors and anything we discuss here on chit chat money is not formal advice or recommendation thanks for listening and we will see you next time Smarter.