McDonald’s (MCD) is a disappointment. Its most recent earnings and revenue numbers were below the Street consensus. Its same-store sales are sliding. And its shares have dropped 4.8% so far this year, underperforming the S&P 500 by nearly 12 points. In fact, all that investors have at this point is a pledge for change, and that’s likely to disappoint too.
Getty Images Unless it doesn’t. That plus the fast-food giant’s heft dividend are enough justification to buy McDonald’s, says UBS analyst Keith Siegner and team. He explains:
This has been a frustrating year and could remain so as competition cont. to effectively execute and innovate against what appears not enough from MCD in months ahead. We are becoming increasingly discouraged that the current plan will be sufficient to close the comp gap to sandwich/burger peers (widened to -630 bps in Sept), let alone NT. It’s also unclear whether McDonald’s will truly address ownership, capital and cost structure opportunities. However, we still see significant potential to unlock value through multiple avenues, both operational and strategic corporate actions. Further, we are encouraged that despite results which were even more disappointing than prior quarters, shares were only down slightly, highlighting the support from low expectations and valuation and w/ a ~3.7% div. yield. Combined, we view the risk/reward as favorable and remain Buy.
Shares of McDonald’s have gained 0.4% to $92.36 at 2:43 p.m. today, while Wendy’s (WEN) has risen 0.6% to $8.06 and Burger King (BKW) has dropped 1.2% to $31.72.
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