Q4 Preview: McDonald's (MCD) to Gain on European Comps; Analysts See Slowdown in FY12

McDonald's Corp. (NYSE: MCD) shares are trading lower heading into its fourth-quarter 2011 report, expected out before the market opens Tuesday.

The Street is currently looking for earnings of $1.29 per share on revenue of $6.80 billion. Should McDonald's meet expectations, earnings would be up 11.2 percent from the $1.16 reported in the same period last year.

Shares of McDonald's gained 15 percent to end the quarter at $100.33. The stock was up nearly 35 percent over 2011. McDonald's shares have traded within a range of $72.89 to $102.22 over the last year.

Last quarter, McDonald's reported cash of $2.35 and a book value of $13.04 per share. Excluding cash, shares are going for 17 times next year's earnings estimates, compared with 18 times for Wendy's (NYSE: WEN) and 18.3 times for Yum! Brands (NYSE: YUM).

Data from Bloomberg shows 22 analysts with a Buy rating on McDonald's, sven at Hold, and none with a Sell. The Street's price target average is $105, with a low of $95 and high of $115.

Analyst Comments

• Goldman Sachs sees earnings of $1.28 per share, with global comps up 6.9 percent. The biggest comparable-store sales boost will come from Europe, which Goldman sees increasing 7.2 percent.
  
  From a near-term perspective, Goldman sees food cost and foreign exchange translation risks. Specifically, FX will serve as a 20 cents per share headwind, something the firm believes is not yet fully reflected in the Street's estimates. On food costs, about 30 to 35 percent of EBIT stems from company-owned restaurants. The firm commented, "We found a strong correlation between MCD's margins and a 9-month lagged commodity index, which supports our below-consensus restaurant margin estimates for 4Q11, but above-consensus margin outlook for 2012."
  
  
• Deutsche Bank is also taking a cautious stance, but still sees EPS of $1.29, flat global margins of 19 percent, and comps up 6.5 percent for the fourth quarter.
  
  "MCD is positioned for strong SSS results for at least the next 3 months, helped by menu pricing, new products (such as McBites in the US), favorable weather, and the Leap Day contribution in Feb, which does not appear to be reflected in consensus forecasts (Consensus Metrix for Feb = +5.6%)."
  
  Looking ahead, Deutsche thinks McDonald's is unlikely to achieve another 30 percent growth year in 2012. While Goldman said it sees an impact of 20 cents per share from FX in 2012, Deutsche sees about a 12 cent headwind. Also in 2012, Deutsche is modeling for restaurant margin expansion of about 10 basis points.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out McDonald's past performance at Streetinsider's McDonald's Income Statement.

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