2 Things to Consider Before Buying McDonald’s
McDonald’s (NYSE:MCD) is probably the most recognizable brand on the globe, at least in the restaurant business. In fact, it happens to be the largest global chain of fast food restaurants. McDonald’s, through its network of franchisees and corporate-owned stores, serves nearly 70 million customers daily in 120 countries. McDonald’s continues to push to remain the best of the best in the fast food space. Major domestic competitors Burger King (NYSE:BKW) and Wendy’s (NYSE:WEN), while making every attempt to steal market share, have yet to be all that successful. The stock currently trades at $94.91 with a 52-week range of $90.86 to $103.70.
The stock has with a p/e of just over 17 and pays a 3.4 percent dividend yield. McDonald’s is one of the greatest companies in history and has been a great stock for the last 25 years. Although the company is taking proper steps to ensure growth (e.g. expanding its menu, watching portion sizes, cutting input costs and pricing strategy), I believe McDonald’s is fairly valued right now, as there are two headwinds the company continues to face: the potential rising costs of labor and issues with beef costs.
1. Labor a significant cost
There is a growing push in the United States and in other industrialized countries to raise minimum wage standards. The cold hard fact of the matter is that paying employees more hurts the bottom line and in turn hurts shareholders. While it certainly boosts the life quality of employees, in turn, the costs are likely to be passed on to the consumer. At what point rising menu costs would reduce business is unclear, but I’m not about to pay more than $5 for a Happy Meal. Might as well call it the “I’m fine meal.” Rising labor costs hurt the shareholders and the consumers, unfortunately.