McDonald's: I'm Lovin' It

03/12/2013 11:00 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Less-than-expected same-store sales drop resulted in more optimism for the future at the world’s largest fast-food chain, notes MoneyShow's Jim Jubak, also of Jubak's Picks.

Friday’s announcement of February same-store sales from McDonald’s (MCD) shows what the company has been up against in the last few months. Same-store sales fell 1.5% in the month from February 2012. That compares to a 7.5% year-over-year gain in same-store sales back in February 2012.

But the March 8 news also signals the coming end of the McDonald’s year-to-year comparison problem after March or so. That’s when year-to-year growth rates from 2012 stop looking impossible to beat. And the market reaction to the news—McDonald’s shares finished up 1.67% on the day, Friday—shows that analysts have swung from too optimistic about McDonald’s revenues to a tad on the conservative side of just right. Analysts had been expecting global same-store sales to fall by 1.6%, so the 15% decline actually looked pretty good.

And the year-to-year comparisons look even better when you note that last year, February had an extra day thanks to leap year. Excluding that leap year effect, global same-store sales actually climbed by 1.7%. (Don’t compare that 1.7% increase to the analyst consensus of a 1.6% drop and get too excited. The analysts know that February 2012 had an extra day.)

US same-store sales were down 3.3%—or flat correcting for 2012’s leap day. European sales were down 0.5%—or up 2.7% correcting for 2012’s leap day. The Asia/Pacific, Middle East, and Africa grouping showed a drop of 1.6%—or an increase of 1.5% after correcting for leap day. Japan was especially weak but China showed positive year-to-year comparisons.

As of March 8, I raised my target price to $106 from $104. The shares closed at $98.89 on March 11.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of McDonald’s as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio here.

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