McDonald’s (MCD) gains International Popularity

On January 12th, 2007 McDonald’s Corp. (NYSE: MCD) began selling the ‘Mega Mac’ in Japan. The Mega Mac contains four meat patties – twice the amount of the regular Big Mac.  

In the first four days it went on sale, McDonald’s sold 3.32 million Mega Mac hamburgers in Japan, doubling the company’s expectations. Fearing that they wouldn’t be able to keep up with demand, they started limiting the number of Mega Macs sold. Japanese Mega Mac lovers are actually lining up outside of theThe New Mega Mac store to get a taste of this 754 calorie monster of a hamburger. Can you say holy crap? Who would have thought the Japanese would push their Sushi aside and run to McDonald’s to grab a hamburger with 4 patties?

I don’t recall ever seeing a food item this popular here in the states, with the exception of the Krispy Kreme (KKD) Doughnut craze a couple of years ago.

 

What does this mean for McDonald’s stock price?

Earnings in Japan had collapsed in 2005 for McDonald’s, and this is a strong indication that their international restaurants are thriving once again. Additionally, they are planning on combing gas stations with Mickey D’s in China, in a deal with Sinopec, one of China’s major Gas distributors. With 31,000 locations topick from across China, you can bet they won’t have a problem finding high volume store locations. China currently has about 780 outlets in China, and plans to increase that by 1,000 by 2008 for the Beijing Olympics. The Mega Mac will increase sales worldwide and most likely spur another documentary by Morgan Spurlock. Can't you just see it now, Morgan living on Mega Macs and traveling the world stuffing his face full at every destination? Of course he would probably yack up the first few Mega Macs like he did in 'Super Size Me' so he would need help from Japan's Takeru “The Tsunami” Kobayashi. If you haven't seen this guy put down hot dogs like Frito's, it's worth a watch, he holds the record at 53 3/4 hot dogs in just 12 minutes. Just imagine him chomping down on Mega Macs, how many do you think he could put down before they all came up? I'm sure Spike TV will have that on later in the year.

McDonald’s share price has hit a 3 week low this week, after reporting record Q4 earnings, doubling their profit. We believe that growth should continue with their efforts in the international markets. A 2.3% annual dividend rate that is sure to increase in the future, coupled with a forward P/E of just 15.22, leads us to believe that MCD is currently undervalued.

According to McDonald's website:
"Since going public in 1965, McDonald's has paid twelve stock splits. In fact, an investment of $2,250 in 100 shares at that time, had grown to 74,360 shares worth approximately $3.3 million as of year-end market close on December 29, 2006.

McDonald's has a long history of increasing our dividend. In fact, the Company has raised its dividend each and every year since paying its first dividend 30 years ago. The Company has more than quadrupled the dividend from 23.5 cents per share in 2002 to $1.00 per share in 2006. Dividends are paid on an annual basis, generally in December."

The drop in share price after an outstanding Q4 earnings report should be viewed as a blessing by investors. Even if you hate everything McDonald's stands for, why not cash in on their global success? 

Because if you don't, they will anyway. 

The Stockmasters are setting a price target of $50 by the end of 2007 just banking on these two young McDonald's customers. Dah, Dah, Dah, Dah-Dah...I'm lovin' it.

 

Article written by:
Eric Cheshier 

Article posted on:
January 29th, 2007

Disclaimer: The Author does not own any shares of McDonald's Corp. (MCD), nor does he own any long or short positions the securities mentioned in this article.