Kiosks to UberEats Boost Big Mac

05/08/2019 5:00 am EST

Focus: CONSUMER

Adam Mayers

Editor, The Internet Wealth Builder and The Income Investor

McDonald's (MCD) has more than 37,000 outlets in 120 countries, of which 44% are in Asia, notably China and South Korea, and in other high growth countries like Poland and Russia, observes Adam Mayers, contributing editor to Internet Wealth Builder.

Although best known for its hamburgers, McDonald's serves a wide variety of food which it adapts to local needs and tastes. In coffee-crazy Australia, McDonald's serves espresso and cappuccino with a robust 'flat white' as its mainstay brew.

In India, the flagship sandwich is the Maharaja Big Mac, a meatless vegetarian (or chicken) version of the North American mainstay.

The shares of the world's largest operator of fast-food restaurants are up 23.5% since my original buy recommendation last July. The stock hit an all-time high of $200 at the beginning of April before pulling back a little. 

On Jan. 30, McDonald's reported year-end results and warned of higher costs in the U.S. and Canada from labour, competitive pressure, and expenses related to remodeling stores. It also noted that a stronger U.S. dollar would weigh on 2019 earnings.

Its 2018 revenue of $21.03 billion was 18% higher year-over-year, with strong performance outside the U.S. and Canada. International same-store sales grew 4.4% in the fourth quarter, almost twice that of its 14,000 U.S. outlets.

The chain is introducing digital ordering kiosks in Canada and the U.S. along with mobile ordering and wider pay and pickup services. This replicates what works overseas.

Deliveries are now a $3-billion business. McDonald's restaurants in Asia and the Middle East have offered delivery for many years, but the general rollout follows a successful 2017 test in Florida. This year, more than 10,000 restaurants, greater than one-in-four worldwide, offer delivery, with UberEats as its delivery partner.

McDonald's is a dividend aristocrat. It has raised its dividend for 43 years in a row, most recently in November. The payment increased 14.9% to $1.16 per quarter ($4.64 per year). The stock yields 2.35% at current prices. 

The shares trade at 25.11 times McDonald's projected 2019 earnings. That is high, but acceptable given the company's dominant position and prospects. Action now: Buy.

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