Shares of McDonald's Corp (MCD: 77.48 0.00 0.00%) have been on a roll lately. The world renowned fast-food giant went through the Great Recession virtually unscathed as cash-strapped consumers flocked to the company's Value Menu.
Investors have flocked to the stock as McDonald's continues to deliver impressive results by sticking with what it does best – delivering food fast and cheap – and also expanding its menu to offer deluxe coffees and smoothies.
The company recently delivered another strong quarter, prompting analysts to raise their estimates.
Third Quarter Results
On October 21, McDonald's reported third quarter earnings per share of $1.29, beating the Zacks Consensus Estimate by 5 cents. It was a 15% over the same quarter in 2009.
Total sales grew 6.0%, including a 5.3% jump in the U.S. Same-store sales in the U.S. improved 5.3%, largely due to strong sales from the company's Frappes and Smoothies.
Sales growth was particularly strong in the company's Asia/Pacific, Middle East and Africa division, which saw a 16% increase year-over-year.
The company was able to manage expenses well, as operating income grew 11%.
Outlook
Management does not give specific earnings per share guidance, but in the latest earnings release the company stated that it expects comparable sales growth of 5% to 6% in October.
Since the company's recent earnings beat, most analysts have raised their estimates for 2010 and 2011 higher. The Zacks Consensus Estimate for 2010 is $4.60, a 15% increase from 2009 EPS.
The 2011 estimate is $5.02, representing 9% annual growth.
Dividend
McDonald's has paid a dividend every year since 1973. In September, the company announced an 11% dividend increase. Since 2000, the company has raised it at a compound annual growth rate of 26.3%.
The stock yields a very stable 3.1%.
Valuation
Shares are looking a little pricey but not unreasonable. The stock trades at 17.1x forward earnings, a slight premium to the industry average of 15.9. Its PEG ratio is a bit on the high side at 1.9.
McDonald's has an outstanding 20.6% net margin, well above the peer group average of 3.3%. This justifies its higher price to sales ratio of 3.5, compared to the average of 0.5.
The company also has an excellent return on investment of 20.1%, trumping the industry average of 7.9%.
About MCD
There are over 32,000 McDonald's restaurants in 117 countries. Approximately two-thirds of total revenue come from outside the United States.
McDonald's is based in Oak Brook, Illinois. It is a Zacks #2 Rank (Buy) stock.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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