McDonald’s (MCD) has a long history of shareholder value creation through capital appreciation, dividends and share repurchase. However, I am of the opinion that the stock is unattractive at current levels, and investors can avoid exposure to the stock in the near term. This is a short-term view and can be reviewed depending on how the company’s financial performance improves over the next 3-4 quarters.
McDonald’s reported dismal results for the third quarter of 2014, and this is the first reason to be bearish on the stock for the near-term. Revenue declined by 5% to $6.9 billion in 3Q14 as compared to $7.3 billion in 3Q13. The decline in EPS was sharper with the company’s 3Q14 EPS at $1.09 per share as compared to an EPS of $1.52 per share in 3Q13.
The weak results for McDonald’s came primarily from underperformance in the United States along with weakness in Europe and APAC. The key concern for me is how McDonald’s will revive its growth in the United States.
There is a big shift in the U.S. towards more healthy food options, and I believe that this is one of the primary reasons for the company’s dismal performance. McDonald’s needs to change its menu to a healthier offering in order to reverse the downturn,. However, that will still take time, and I believe that McDonald’s will continue to witness slow growth or de-growth in the next few quarters.
— Guru Focus