When one thinks of McDonald’s (MCD - Free McDonald's Stock Report) what typically comes to mind is the Golden Arches (an iconic symbol of American culture), along with a menu of indulgent fare and Happy Meals for kids, complete with a trinket or toy. And, of course, who can forget Ronald McDonald. But, in the world of equity investments, MCD represents more than just a fast-food chain. Indeed, it holds an enviable spot in the elite group of large stocks that comprise the Dow 30. In fact, the blue chip is considered to be one of the long-time favorites of investors seeking stable, established companies that offer minimal risk and considerable returns over an extended period of time.
No doubt, there are loads of features that jump out from our Value Line report on McDonald’s. The Ranks box, for example, (located in the upper left-hand corner of the page) showcases some very important data that are useful in determining whether a stock is a good fit, depending on the individual’s investment strategy. In the case of MCD, we see this equity carries a Safety rank of 1. The rank, which ranges from 1 (Highest) to 5 (Lowest), suggests the stock has considerably less risk. Thus, McDonald’s stocks is much safer than the average issue under Value Line’s review, making it a top-notch selection for cautious investors. The Beta coefficient, located in the same section, further supports this notion. For MCD, this measure is pegged at 0.60, meaning the issue’s volatility is well below that of the market (where 1.00 = the market).
The Ratings box, found at the bottom right-hand corner, contains additional metrics that reinforce the solid risk profile here. Not surprisingly, McDonald’s earns stellar marks pretty much across the board. The stock scores a perfect 100 for Price Stability, which refers to the degree of stability exhibited by the equity’s price over a period of time. Price movement is shown in the Graph.
Notably, too, the company gets a superior grade of A++ for Financial Strength, which takes into account a range of balance sheet items, such as cash on hand and debt level. Indeed, if we glance over the Capital Structure box on the left, we can see that the debt level, while sizable, is a manageable 47% of total capital and interest is adequately covered by earnings. Just below that is the Current Position box, where we see that the fast-food chain has plenty of cash in the coffers.
The equity has other fairly alluring qualities. In fact, MCD shares feature a very hearty dividend yield (found in the Top Label at the top of the page), when compared to the Value Line median for all stocks under coverage. At 3.4%, the expected return from cash distributions on the equity over the coming 12 months means there’s some decent income to be made here. And while MCD is just an average choice for year-ahead price performance relative to the broader market, as denoted by the Timeliness rank of 3 (with 1 being Highest and 5 being Lowest) in the Ranks box, the Projections box implies that the stock possesses good long-term appeal. In fact, based on Analyst Matthew Spencer’s Target Price Range for the coming 3- to 5-year period, the equity offers worthwhile capital appreciation potential for that time frame. What’s more, MCD shares offer substantial total return possibilities, if estimated price appreciation and prospective dividends to be paid over that span are factored in together.
All told, MCD stock makes a suitable pick for income-and-growth minded investors with a conservative bent. The analyst sums it all up nicely in the final paragraph of the Commentary by saying “We don’t think this equity will deliver heady gains in the near term, but that doesn’t mean it lacks any investment merit.”
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.