Own McDonald's, Not YUM! Brands or Del Taco

With more than 36,000 restaurants worldwide, McDonald's Corporation (MCD) is one of the most popular and loyal names in its industry. But due to rise of other fast-food casual chain in US and food safety scandals in Asia, the company is facing some major challenges.

In the last year the company has closed many stores. Recently, the closures have outpaced the number of opened stores in many areas.

But, long-term investors should rejoice: They now have an opportunity to buy a blue-chip stock at a rare discount.

There are plenty of reasons to be bullish 

With all of these negative points, the company has still managed to increase its net operating margin for the second quarter.
That bodes well for long-term profitability.

Currently the share price is trading about 11% lower from its high point of $132 back in May. Many investors are watching the weakness and worrying, especially because the share price of many competitors continues to rise.

For example, over the last 6 months, Carrols Restaurant Group, Inc. (TAST) has risen by 16%, Del Taco Restaurants Inc (TACO) has risen by 30%, and Yum! Brands, Inc. (YUM) has risen by 13%

Although McDonald's is facing some near-term business challenges,the biggest company in the retail restaurant industry remains well-diversified, covering more than 100 countries.
Own McDonald
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It's stability should not be underestimated.

New products should also help support future growth.

The company’s all day breakfast, which started in the beginning of fourth quarter of 2015, has become immensely popular.

Moreover, given rising health concerns and increasing awareness on obesity and related diseases among customers, the company is planning to discontinue the use of chicken raised with antibiotics. In order to meet consumer preference for quality food, the company announced plans to shift completely too cage-free eggs for approximately 16,000 restaurants in the U.S. and Canada over the next 10 years.

Long-term tailwinds remain intact 

Currently more than 80% restaurants are franchisees of the company, but it is planning to increase that number to 95% in next 5 years, improving cash flows significantly. The earnings of the company areexpected to increase at an average annual rate of 9.7% over the next 5 years.

Especially at these levels, holding shares for the long-term will be beneficial from the perspective of  both dividends and capital appreciation.
Published on Oct 12, 2016
By Moonmoon Biswas
Moonmoon Biswas is an Equity research analyst . She has more than 10 years of experience in this field. She loves write about financial topics which are much needed in our day to day life but most people tend to ignore that, like- personal finance, equity and investment related matters.

Copyrighted 2020. Content published with author's permission.

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