Update McDonald’s (MCD)
Economists aren’t sure but McDonald’s (MCD) is investing for a global economic recovery.
McDonald’s expects to increase global capital spending to $2.4 billion in 2010, up from $2.1 billion in 2009. That will let the company add 1,000 new stores and “re-image’ 2300 more. To put that capital budget in the context of the rest of the fast-food industry, the $300 million increase in McDonald’s capital spending is larger than Burger King’s (BKC) entire capital budget, Deutsche Bank calculates.
The increased spending includes a 25% increase in capital spending in China that would finance the opening of 150 to 175 new stores in China in 2010.
None of this is terribly surprising when viewed through the lens of the company’s February 9 report of same-restaurant sales for January.
Growth in the U.S. continues to lag but has held up remarkably well considering the country’s roughly 10% unemployment rate. McDonald’s looks poised to turn increased market share and traffic into increased sales when the economy turns.
Europe continues to perform well with comparable sales up 4.3% for the month.
Sales growth in the Asia/Pacific, Middle East, and Africa region matched that figure.
As of February 10, 2010 I’m leaving my target price at $72 a share by September 2010. On that date the stock was paying a 3.46% dividend yield and it traded at just 13.2 times projected 2010 earnings per share.
I can hardly see any Jim’s post that does not mention China. 25% of MCD’s increased capital spening are directed for China. I told you so. It’s not just American buy Chinese stuff, Chinese buy ours too.
Good point, seems like every market story mensions china. Way to play china is mcd. But the benefit to the us economy overall is not great. How many sustainable american jobs will 25 percent chinese growth for mcd generate? Or ten percent?
Farmers might do okay. Ag stocks.
But we’re trading an awful lot of manufacturing jobs here for fast food jobs there, and over time that is not a winning swap.
But it makes MCD a buy. Ko and pep too. Pot? Moo?
Jim,
Dare I point out that McDonald’s plans may NOT be for an economic recovery? Frankly, they are one of the few companies which has seemed to thrive in the downturn, undoubtedly due to their low-cost menu.
For the economic “doom and gloom” types (like me), McDonald’s is a pretty good blue chip play.
McDonalds is trying to play catch up to KFC (Yum Brands) and others in China, which is a great bet seeing as though the market is pretty well saturated here in the U.S. McDonalds, like so many others, have their greatest opportunity for growth in emerging markets. I believe that is the point Jim has been hammering the last few months.
Ed, I agree with you as well. While MCD may not be a home run stock pick (we missed that opportunity many moons ago), it’s definatly not one I’m looking to sell anytime soon. I like to sleep at night.
Actuallly, if it were not for the good dividend I think I would seriously look to exit this stock at around 65.-. I think the economic recovery will favor other asset classes shortly.
@Southof8–It may not create jobs here, but it may bring profit here, which can be spent here, and that will create jobs here. It may also increase protein demand. US farmers are the best in the world, so they’ll benefit the most.
May I propose that every single little thing does not have to be about jobs and the US trade deficit? Besides, a service economy is a sign of wealth and not poverty. While I have issues with “jobs going overseas”, I also have a feeling that things are not be as bad as we often act like they are. Besides, cheap stuff from China and Mexico enriches everyone here, and allows us to spend more of our work hours in service industries (I like to golf, do you?). IMO, the challenge is not the cheap stuff, but the off balance spending.