McDonald's CorporationMCD

Morningstar Rating

Stock Research and Analysis

by R. J. Hottovy, CFA

McDonald's continues to thrive despite an increasingly difficult global economy. Although we doubt the company can sustain the explosive growth trends it has posted in the last several years, we are optimistic that it is capable of delivering solid Read more

Bulls Say

Quick-service restaurant visits dramatically increased from 2007 to 2008, according to a number of industry surveys. We believe quick-service restaurants provide attractive dining alternatives for cash-strapped consumers.

McDonald's maintains the leading market position in virtually every country in which it operates. Additional global expansion opportunities still exist.

New premium products, engaging marketing campaigns, extended hours, and renovated restaurants have reinvigorated the brand. The McCafe menu represents a credible threat to Starbucks SBUX in the specialty coffee segment.

McDonald's produces stable cash flow, even in challenging economic times, because of long-term franchisee royalty and rent payments. The firm owned 45% of the land and about 70% of the buildings for its restaurants at year-end 2008.

McDonald's has a 30-year-plus history of paying cash dividends and repurchasing shares, including $5.8 billion returned to shareholders in 2008. Read more

Bears Say

The quick-service restaurant industry is fiercely competitive, marked by a history of price wars. Switching costs are virtually nonexistent.

Volatile commodity costs, foreign currency head winds, and difficult year-over-year comparisons could disrupt McDonald's quarterly results.

Bankruptcies among quick-service franchisees are on the rise. High food, energy, and labor costs are a concern, and tighter credit markets could constrain small franchisee growth.

Many rivals, including Burger King BKC, Jack in the Box JACK, and CKE Restaurants CKR, aggressively target heavy fast-food eaters with indulgent items. However, McDonald's often receives the blame for rising obesity problems.

McDonald's has not been immune to product failures over the years, including the Arch Deluxe, the McLean Deluxe, and McPizza. Read more

Strategy

McDonald's Plan to Win strategy is a multifaceted approach to increase sales and profitability at existing locations. Key tenets of this plan include increased menu variety and beverage choices, improved Read more

Management

Jim Skinner has been McDonald's CEO since November 2004, and has held various leadership responsibilities with the firm for more than 37 years. Skinner has also served as vice chairman since January 2003. Under Skinner's guidance, the firm has successfully Read more

Profile

McDonald's generates revenue through company-owned restaurants, franchise royalties, licensing arrangements, and other equity investments. Restaurants offer a uniform value-priced Read more

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