A Closer Look At This Food Giant: McDonald’s Corporation (MCD)

The world’s largest hamburger chain, McDonald’s Corporation (NYSE:MCD), serves over 68 million customers in 119 countries. All McDonald’s restaurants are either operated by the corporation, franchisee, or an affiliate.

Recent Developments

McDonald’s expanding in Russia

McDonald’s Corporation (NYSE:MCD)’s has recently announced that it would be expanding itself in Russia as its rivals keep on increasing their presence in the region. The company has more partners lined-up this year after making Rosinter its first franchisee last year.

Russia CEO Khamzat Khasbulatov said, “Beyond the Urals, we are interested in Western and Eastern Siberia, and we are also considering franchising out restaurants in (Russia’s western) enclave of Kaliningrad”.

According to the company, it would operate its business through franchises where it’s less profitable to go for self-operated restaurants. By the end of this year, Rosinter would be opening its first restaurants in St Petersburg and Moscow. During the next three years, McDonald’s Corporation (NYSE:MCD)’s has plans of opening more than 150 self-operated restaurants in Russia.

Menu Changes at U.S. Restaurants

McDonald’s Corporation (NYSE:MCD)’s has decided to cut its Fruit & Walnut Salad and Chicken Selects from U.S. menus. Plus, the company is also in the process of deciding whether to keep its premium Angus burgers on the menu or not.

McDonald’s Corporation (NYSE:MCD)’s has dominated the burger industry for years but rivals such as Wendy’s and Burger King are now closing the gap on the burger giant. This latest move comes as a reaction to these chains which have recently done well with their new menus.

Regarding these latest menu changes, McDonald’s Corporation (NYSE:MCD)’s spokeswoman, Danya Proud said, “As always, we are constantly evolving our menu and listening to our customers to meet their changing needs”.

January Sales Drop

According to McDonald’s, January sales at its restaurants around the world have fallen to 1.9%, 0.8% more than the analysts’ estimates. In January, 2012, same store sales grew by 6.7%. February, 2012 sales would be hard to beat as the month had an extra day due to the leap year. In February, 2012, McDonald’s recorded a sales growth of 7.5%. Slow economic growth has been the chief culprit behind this weak sales figure.

Valuation

McDonald’s Corporation (NYSE:MCD)’s is trading at a forward P/E (1yr) of 15.27x and has a PEG of 1.88. Incorporating a healthy dividend yield of 3.20% in its PEG gives us a PEGY of 1.41. Using an industry forward P/E of 17.6x, I would value McDonald’s.

Using consensus estimates for 2013, I value McDonald’s at $102. This shows that it’s undervalued by 6.25%. By adding its dividend yield into this we get to a total return of almost 9.5%.