Full Disclosure Finance

By Andrew

I’ve been building up a position in McDonalds over the last few weeks (see my previous posts here and here for details). In the most recent post I said that the stock would probably trade lower and I was looking for resistance around $50 per share. Well on Monday the stock hit that level thanks to a 6% drop and I used the opportunity to buy another 15 shares. The purchase increased my position to 50 total shares and lowered my average cost basis to $54.31 per share. The catalyst for the decline was their Q4 report which dropped before the market open on Monday. So what was the terrible news? Lets see…net income came in at $0.73 per share on revenue of $5.75 billion, both of which beat consensus analyst estimates. Global same-store sales were up and impressive 6.7%. The company repurchased over $1.3 billion of stock bringing the total for 2007 to $5.7 billion of stock buybacks and dividends paid. For the full year revenue rose to a record high of $22.8 billion. The company also announced plans to return $17 billion in equity to shareholders through dividends and stock buybacks from 2007 to 2009.  Company buybacks are a great sign for investors because, not only does it reduce the supply of shares available on the open market, it also means that the company has confidence in the direction of its stock. Wait a minute…all these are good things you say? What sent the stock tumbling was news that US same-store sales were flat for December…news that has been widely reported over the past few weeks. Everyone knew that this was coming and investors still beat the stock down 6%. This is a classic overreaction in a very pessimistic market, and a great entry point for a long term investment. The fundamentals haven’t changed a bit at McDonalds and as far as I’m concerned the recent conference call has reasserted my bullishness on the stock. I’m at the limit of the dollar amount I want put into this stock for now so most likely I won’t be adding to the position in the near future. Stay tuned for any news or changes in the stock.