I am going to attempt my first stock analysis on McDonald’s Corporation (MCD). I will be getting my information from Nasdaq.com and using their “Nasdaq Dozen” fundamental analysis process. I am going to be trying different methods for analyzing stocks to a) learn about different methods, b) find a method I like, and c) get practice going through a systematic approach as opposed to bouncing between different metrics with little guidance.

  1. Revenue: In 2013 MCD brought in $28,105,000 but in 2014 only earned $27,441,000.  Is it doing better in 2015? It doesn’t look like it. The first and second quarters are both lower than their counterpart from 2014. The first quarter went down by $742,000, and the second quarter revenue was lower by $684,000 (2014 to 2015). Fail
  2. Earnings Per Share (EPS): Earning per share dropped from $5.55 (2013) to $4.82 (2014).  It is also down in the first two quarters of 2015 compared to 2014. 1st Quarter: $1.21 –> $.84. 2nd Quarter: $1.4 –> $1.25. Fail
  3. Return on Equity (ROE): This shows how well management is producing a return for owners of the company. Ideally, there should be a consecutive increase over two years.
  •  2012: 36%
  • 2013: 35%
  • 2014: 37%

There was a decrease from 2012 to 2013 but an increase from 2013 to 2014. Fail

4.  Analyst Recommendation: 27 analysts  rated MCD. 7 recommended strong buy, 1 buy, 12 hold, 1 underporm, and 0 sells. I want to call this a Pass, but I will go with a Fail since the consensus is less than a buy as per nasdaq.

5. Earning Surprises: This metric is used to check and see if the company is meeting (or beating!) their expectations. I am happy to say that MCD has exceeded expectations in the past 4 quarters! Pass!

Fiscal Quarter End Date Reported Earnings Per Share* Consensus EPS* Forecast % Surprise
Jun2015 07/23/2015 1.26 1.23 2.44
Mar2015 04/22/2015 1.1 1.05 4.76
Dec2014 01/23/2015 1.22 1.2 1.67
Sep2014 10/21/2014 1.52 1.37 10.95

Read more: http://www.nasdaq.com/symbol/mcd/earnings-surprise#ixzz3mQ9EjOaO

6. Earnings Forecast: Is the Earnings forecast going up year after year? Let’s have a look!

2015: 4.7

2016: 5.14

2017: 5.6

McDonalds gets another pass!

7.  Earnings Growth: I want to see if the long term 5 year earnings growth is over 8%. Unfortunately, MCD just misses the mark at 7.53%. Fail

8. PEG Ratio: To receive a pass on this metric the PEG ratio needs to be under 1.0. MCD is currently at 2.76. Fail

9. Industry Price Earnings: This metric compares MCD Price/Earnings to its competitors in the industry.

MCD is at a 20.82 Price/Earnings ratio

Industry is at a 26.70 Price/Earnings ratio

McDonald’s gets another fat Fail!

10. Days to Cover: I am just looking to see if the days to cover is less than 2.0. MCD is currently at 1.77 days to cover. Pass

11. Insider Trading: This is one of my favorite metrics to look at. It’s nice to see if the insiders are buying or selling. All sells shouldn’t be looked at as negative because the person might just be reallocating to (wait for it) diversify! We want to see if the there has been a Net buy vs Net sell over the past 3 months.

In the past 3 months, 13,274 shares were sold whereas 0 shares were bought. Fail

12. Weighted Alpha: First time I have heard of this metric so I will just quote Nasdaq’s description: “Weighted Alpha is a measure of one year growth with an emphasis on the most recent price activity. A positive Weighted Alpha indicates the stock price is moving higher and a negative Weighted Alpha indicates the stock price is moving lower. Naturally, when you are looking at buying a stock, you want to see a stock that is increasing in value, not decreasing in value.”
Read more: http://www.nasdaq.com/investing/dozen/weighted-alpha.aspx#ixzz3mQRHMl62

To pass: positive weighted alpha

To fail: negative weighted alpha

MCD passes with a +3.80

Now what?

 1. Revenue FAIL
 2. Earnings Per Share (EPS) FAIL
 3. Return on Equity (ROE) FAIL
 4. Analyst Recommendations FAIL
 5. Earnings Surprises PASS
 6. Earnings Forecast PASS
 7. Earnings Growth FAIL
 8. PEG Ratio FAIL
 9. Industry Earnings FAIL
10. Days to Cover PASS
11. Insider Trading FAIL
12. Weighted Alpha PASS
TOTAL 4:8

“Typically, stocks with NASDAQ Dozen ratios of 12:0 to 9:3 are strong candidates for growth, stocks with ratios of 8:4 to 6:6 are moderate candidates for growth and stocks with ratios below 6:6 are poor candidates for growth.”
Read more: http://www.nasdaq.com/investing/dozen/weighted-alpha.aspx#ixzz3mQTZ1nqG

It doesn’t look that great for the golden arches. However, this method did not account for the ever increasing dividend. I enjoyed going through the process but think i’ll look for a different method. It was a great learning experience for me. I am not looking to initiate any positions in MCD in the near future. I just chose to analyze MCD because it was the first stock that entered my mind (probably from drinking too much of their coffee). Does  anyone have a favorite method for analyzing stocks?

Hope everyone is having a great start to their week! Almost half way too the weekend! Take care.

JT

It has been another exciting week! I was lucky enough to have some extra capital to purchase shares of another great dividend machine. I bought 35 shares of Toronto-Dominion Bank (NYSE: TD) @ $39.00. This will add $71.04 to my annual passive income. Toronto Dominion Bank is the second Canadian bank that I partially own. October will be a good month for me due to the fact that TD and BNS both have the same ex-dividend date and pay date (10/2 and 10/30). This new addition brings my total 12 month passive income up to $1494.38.

I was bummed for a little while because JNJ took off before I could add to my measly 5 shares. That pushed me into picking another company up off of my dream list. I also thought about averaging down on my position of KMI but decided to wait. I believe that I’ll be able to do this in the future but wasn’t sure how long TD would stay at $39. It is down from its 52 week high of $52.68.

Roadmap2Retire wrote a great piece on Seeking Alpha about TD that you can find here:

Roadmap2Retire analysis on TD

I agree 100% with his thoughts in his conclusion: “The Canadian banks are regarded as some of the safest financial institutions in the world. The companies have a long track record of being conservative and focused on long-term stability and prosperity. TD has existed as an institution since 1855 and paid dividends since 1857. It makes for a great core position in any investor’s portfolio.” What more could you want? He also wrote about the entire Canadian Bank sector on  his blog too! His link is in my Reading list.

I am not looking to pick up another Canadian bank now that I own two. I might pick up WBK (Australian Bank) in the future as a third bank. However, I am looking to diversify more with a WMT, PEP, SO, EMR, or MDLZ. The excitement for future positions makes me feel like I’m 7 years old with $5 in my pocket!

I will rest easy with Toronto-Dominion Bank on my side. All I can say is “O Canada, you may not be my home or native land, but I still love you!” I hope everyone had a great week and wish you a fun and safe weekend!

Take Care,

JT