McDonald’s Corporation (MCD): Have Faith in Ronald McDonald

Burger King is trading at a forward P/E (1yr) of 21.40 and yields a dividend of 1.20%, which makes it far more expensive than McDonald’s. According to the sell side, Burger King has a one-year price target of $19.29, showing that it’s slightly overpriced. The bottom line is that though Burger King is doing well, its stock isn’t a very good investment.

Conclusion

McDonald’s introduction of new items on the dollar menu has seen a great amount of interest among the U.S. consumers. Late night breakfasts have also been among the top contributors of revenue in the region. Given the fact that the U.S. economy is gradually improving, the company is expected to do a lot better in the U.S. during the next quarter. Europe’s sluggish economic growth means that McDonald’s has to look somewhere else for profits. As the Russian market looks to be a great place for improving margins, McDonald’s decision of expanding itself over there seems to be bang on target.

McDonald’s hasn’t done that well in the recent past, but the fact is that it’s one of the top restaurants in the world. A super high ROE of 37% depicts that it’s still minting a lot of money for its shareholders. The global economic meltdown has been the core reason behind its lackluster quarter. With the global economy heading in the right direction, McDonald’s margins seem to be going nowhere but up. Plus, McDonald’s huge excess cash shows that it will keep on rewarding its shareholders in the form of growing dividends. Apart from this, McDonald’s low price presents a great opportunity for long term gains. In short, buy McDonald’s for an upside of 9%.

Waqar Saif has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide (NYSE:BKW) and McDonald’s. The Motley Fool owns shares of McDonald’s.

The article Have Faith in Ronald McDonald originally appeared on Fool.com and is written by Waqar Saif.

Waqar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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