THERE are more fashionable places in which to dine than McDonald's – there aren't, however, too many better places in which to invest.
Since recording its first-ever quarterly loss in 2002, McDonald's has done a remarkable job of restoring the lus
tre to its golden arches, repositioning its offering in response to negative publicity. Garish plastic seating and "super size" meals are out; refitted restaurants and healthier choices are in. While the McMakeover met with a large portion of cynicism, it worked: over the past two years, the S&P 500 index has risen by around 5 per cent – McDonald's shareholders have enjoyed a super-sized 75 per cent return.
Analysts' forecasts are for earnings per share to rise by around 5 per cent this year – but we think they will rise by more than 10 per cent.
Why? Firstly, because the makeover has yet to be rolled out worldwide, creating the potential for further growth. Secondly, McDonald's is a beneficiary of the economic downturn: as consumers come under pressure, they are trading down to cheaper alternatives. McDonald's coffee is cheaper than Starbucks, but its new-look restaurants and emphasis on higher-quality brews have made it an acceptable alternative. For worried consumers seeking comfort food, McDonald's has its dollar menu, replete with cheeseburgers and apple pies. Finally, free cashflow is monstrous: in each of the next three years, free cash-flow should exceed $3 billion (£1.5bn), which will find its way back to shareholders in buy-backs and dividends
Global growth, recession-resistant earnings and a super-sized side order of cash-flow? McDonald's shareholders really are, as the adverts claim, lovin' it!
• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.
The full article contains 321 words and appears in The Scotsman newspaper.
