We remain Neutral on
) following the company's mixed third-quarter 2013 results.
Why the Reiteration?
On Oct 21, 2013, McDonald's posted third-quarter 2013 earnings of
$1.52 per share, which beat the Zacks Consensus Estimate of $1.50
by nearly 1.3%. Quarterly earnings were also up 6.0% from the
year-ago level. Earnings in the quarter received a boost from
increase in revenues and share repurchases.
Although its revenues of $7.32 billion grew 2.0% year over year,
it fell shy of the Zacks Consensus Estimate of $7.34 billion.
Though McDonald's third quarter global comparable sales (comps)
were positive, they were lower than the previous quarter as well
as the year-ago quarter. Global comps were up just 0.9% during
the quarter versus 1.0% in the second quarter and 1.9% in the
year-ago period. Comps growth moderated due to lower consumer
spending, resulting from the prevailing macroeconomic weakness.
McDonald's has become extremely vulnerable to macroeconomic
headwinds like debt concerns in Europe, decelerating growth in
Asia and intense competition in the U.S. McDonald's expects comps
to remain under pressure in the coming quarter as well. For the
fourth quarter, global comps are expected to remain consistent
with the recently reported quarter. Global comps are expected to
remain flat in October.
Despite these concerns, we still believe that the company has
strong value. McDonald's has historically enjoyed moderate growth
prospects with its exposure to under-penetrated international
markets. Commodity costs are also cooling off in major geographic
McDonald's currently carries a Zacks Rank #3 (Hold). Others
players in the same industry, which look attractive at current
Buffalo Wild Wings Inc.
) and R
ed Robin Gourmet Burgers Inc.
), all carrying a Zacks Rank #1 (Strong Buy).
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