EconomyWritten by Havre On 09 March 2012
McDonald’s Slides on Poor European Sales. Buying Opportunity?

McDonald’s (MCD, NYSE, 52 week range 72.89 – 102.22) shares dropped over 3 percent to close at $96.96 per share on March 8, resulting from poor February same-store sales in Europe. Even though the Dow Jones Industrial Average continued to come back from March 6th’s 200-point drop, investors took the opportunity to take some money off the table from the Dow company. MCD has seen a great move upwards from the recession lows of $50 per share and is up about 11 percent since last October’s market lows.

MCD reported same-store sales globally for February up 7.5 percent, but analysts were looking for 7.7 percent. The weakness mostly came from its largest sales market, Europe, up 4 percent when the street estimate was for at least 6 percent. The company responded that “persistent economic uncertainty and austerity measures in Europe” were to blame. Not selling enough French fries in France?

Starbucks recently reported in its most recent quarter that global same-store sales growth was 9 percent, but in Europe it was just 2 percent.

Seeking Alpha is seeing this as a buying opportunity. It says, “People that have been in the market for a long time know and agree with the notion that temporary bad news for a good firm is good in the long run for investors.” But is it is temporary bad news for Europe? Some think it is only the beginning of a long, weak consumer market across the pond.

Alpha also mentions that the pullback has now made the company’s annual dividend of $2.80 per share close to a 3 percent annual yield. It is expecting a dividend increase in November 2012.

Things to note; MCD’s share price has broken its 50-day moving average of 99.82 and is close to doing the same to its 200-day moving average of 94.61, which could hurt the share price on a technical basis. Currently, analysts followed by Thomson/First Call are still bullish. Out of 28 analysts, six have a “strong buy,” 13 “buy,” nine “hold” and zero at “under-perform” or “sell.”

As of Dec. 31, 2011, there were 33,510 McDonald’s restaurants in 119 countries with about 27,000 franchised and about 6,500 owned. Over the last 12 months, the company generated over $27 billion in sales and have approximately $2.35 billion on its balance sheet.

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Havre

Randy Havre has a wealth of experience in the financial industry. In 1987, he established his own full-service stock brokerage firm, which was also registered with the SEC as an Investment Advisory Firm, managing money for the State of Hawaii’s pension fund, among other portfolios. In 1994, he started his first of three Hawaii based Venture Capital Funds. Additionally, he wrote a weekly stock column in the Pacific Business News for 21 years, taught Finance 315 Portfolio Management and Investment Strategies at the University of Hawaii for five years and is on KHON’s Morning News as a business/financial analysis twice weekly. Over the past nine years, Havre has been active in South America doing business development work for some of his portfolio companies, mentoring entrepreneurs and advising investors.

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