chew on this
Posted by Dale Buss on June 15, 2012 03:59 PM
McDonald's is a bellwether of the global economy. It sells a value proposition to mainstream consumers worldwide, and it's a huge force in virtually every market.
Right now, that might not be such a great thing, for McDonald's — or the global economy. Analysts and investors have been turning sour on McDonald's stock because of factors such as the company's dependence on a slumping Europe for 35 to 40 percent of its earnings, a same-store sales decline for May in McDonald's Asia Pacific-Middle-East-Africa region including China and Japan, and of course indications of a faltering economic recovery in the United States.
There's also the matter of greater competition for McDonald's. After years of stumbling to mount much of a challenge to McDonald's, both Burger King and Wendy's have shown signs of renewed growth lately.
Such challenges could constrain McDonald's sales growth for an "extended period," believes Goldman analyst Michael Kelter. Flagging same-store sales and assorted headwinds at McDonald's "are too great to look through at this point," as Goldman's latest assessment puts it.
But hold on a minute. This is the same McDonald's that has wowed both the investment community and consumers for several years now with its new menu items, which increasingly are limited-time promotions; same-store sales growth; a $3 billion global store makeover; and greater willingness to engage its huge community of critics.
And so there also is a school of thought that it's easy for investors to overreact to what probably is a temporary slump for McDonald's. For example, its troubles in Japan appeared to be the result of a marketing misstep around a value menu promotion in the market. And much of McDonald's presence in China is in new stores that historically take a while to gear up.
Joe Terranova, a market strategist for Virtus, says that McDonald's is one stock he would hold on to. He told CNBC's Fast Money that the stock has been oversold and that a weak economy benefits McDonald's as consumers trade down. Still, the bigger question for McD's management is how to get more consumers back to lovin' it.