McDonald’s: Zacks’ Bear of the Day Play

McDonald’s Corporation (MCDAnalyst Report) is in the midst of trying to find its competitive footing after years of global domination. This Zacks Rank #5 (Strong Sell) is expected to see a decline in earnings in 2015 as it struggles against nimble competition.

McDonald’s is one of the world’s largest restaurant chains with over 36,000 locations globally.

It’s famous for several of its brands including the Big Mac, Quarter Pounder and, in the month of March, the Shamrock Shake.

February Sales Disappointed

On Mar 9, McDonald’s reported February’s monthly sales results which decreased 1.7%.

The United States, despite lower gasoline prices and a recovering economy, declined 4%. Asia/Pacific, Middle East and Africa fell 4.4%.

The company cited broad-based consumer perception issues in Japan for part of the downturn in Asia.

One of the few bright spots was Europe, which saw a gain of 0.7% despite the continent’s lackluster overall economic growth.

Another New CEO

Earlier this year, McDonald’s made a change at the top. As of Mar 1, 47-year old Steve Easterbrook became CEO. He was formerly global chief brand officer.

Many analysts believe that branding will be key to the changes that will come to the company. McDonald’s menu is now far more extensive than its original mission of burgers and milkshakes.

Additionally, with the emergence of specialty burger chains like ShakeShack, Habit Grill, Red Robin and Smashburger, McDonald’s now has to worry about more than just its former rivals of Burger King and Wendy’s for consumers dollars.

Estimates Slashed for 2015

The analysts aren’t optimistic that 2015 will be the year of the turnaround.

10 estimates have been cut for 2015 in just the last 30 days. Analysts now expect earnings to fall 7.2% compared to 2014.

They’re also not that optimistic about 2016. They see earnings growing just 8% and that is now off a lower bar.

Still Not Cheap

While shares sank in early 2015, they have since rebounded with Easterbrook taking over the helm.

Investors won’t get a deal on McDonald’s right now. It is trading with a forward P/E of 20, which is well over the average of the S&P 500 of 17.9.

But why concern yourself with when McDonald’s will turn it around?

There are other restaurant chains where earnings are rising.

Investors should take a look at Darden Restaurants, Inc. (DRIAnalyst Report). The owner of the Olive Garden spun off its Red Lobster chain and is now a Zacks Rank #1 (Strong Buy). It is expected to grow earnings by 46% in fiscal 2015 and another 12.3% in fiscal 2016.

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Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.


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