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McDonald's - Time To Sell?

Summary

Shares of McDonald's climbed 25%+ in 2015 and nearly another 10% so far in 2016, and MCD seems to have converged to near its intrinsic price.

The company has shown strong recent financial performance and continues to offer a compelling near-term outlook.

MCD might still offer some capital appreciation upside with its stock buyback and financial engineering initiatives to lower its cost of capital, with the company's upside outweighing the downside.

The year 2015 was great for McDonald's (NYSE: MCD), observing a 25%+ climb in share price. Despite the market also being a mixed bag thus far in 2016, MCD has seen close to another 10% climb. Despite being a well-known mega-cap stock, it has been one of my better performing investments over the past eight months. When I initially went long in the mid-$90s, I set a price target in the mid-$130s. One of my recent projects has naturally been to re-analyze MCD based on new information collected from the previous quarter and into Q2 2016 and determine how to act going forward.

Recent Financial Performance and Near-Term Outlook

The company bins its revenues into four main general market classifications - U.S., International Lead Markets (i.e., developed non-U.S. countries, such as the UK, Australia, and Canada), High Growth Markets (e.g., China, Russia), and Foundational Markets & Corporate. Of these four markets, revenue increased in the U.S. only compared to corresponding performance in Q1 2015 (to account for seasonality), but dipped in the other three. However, operating income increased in all four regions, with global comparable sales up 6.2% over Q1 2015 (slightly lower if adjusted for the extra day associated with leap year) and beat consensus earnings estimates by $0.07/share (Source: most recent 10-Q filing). U.S. comparable sales increased 5.4%, largely due to the popularity of its expanded menu options (e.g., all-day breakfast) and the introduction of the "McPick 2," which, despite some early shuffling with its pricing options, has worked to expand consumer choice. Consolidated expenses decreased by 1%.

In terms of these metrics' effects on projected earnings, a 1% change in comparable sales in the U.S. or...


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