April 1, 2015

VALUATION WATCH: Overvalued stocks now make up 58.52% of our stocks assigned a valuation and 21.16% of those equities are calculated to be overvalued by 20% or more.  Twelve sectors are calculated to be overvalued--with four at or near double digits.

--Ronny's Raise

McDonald's Announces Pay Increase at Company-Owned Stores

McDonald's Corporation (MCD) develops, operates, franchises and services a worldwide system of restaurants that prepare, assemble, package and sell a limited menu of value-priced foods. The company operates primarily in the quick-service hamburger restaurant business. All restaurants are operated by the company or, under the terms of franchise arrangements, by franchisees who are independent third parties, or by affiliates operating under joint-venture agreements between the company and local business people.

McDonald's has been battered in recent years by declining sales, changing tastes, and competition from options perceived as fresher, tastier, and healthier from competitors such as Chipotle. They have also suffered from bad labor relations due to poor wages and and benefits. In an effort to address both problems, the company announced today that employees in company-owned stores would receive a boost in pay to equal the local minimum wage plus $1.00 as well as five paid sick-days per year for employees with at least one year on the job.

The Wall Street Journal reported that company CEO Steve Easterbrook hopes that the wage boost will increase sales and that "“what we need to underpin that is highly motivated teams in our restaurants. Motivated teams deliver better customer service and delivering better customer service in our restaurants is clearly going to be a vital part of our turnaround.”

Like retail giant Wal-Mart--which also announced a significant pay raise a few weeks ago--the fast-food giant was under intense pressure from workers, labor activists, and union organizers to do something about its low wage structure. While this change may help with that problem, it will only effect @1500 company-owned restaurants and do nothing to change pay and benefits at the more than 14,000 McDonald's run as franchises.

Of course, the wage increase is nowhere near the $15 level "living wage" demanded by service workers unions and the activists that have been leading protests against the fast food giant. Like the recent Wal-Mart increase, one wonders whether claims that the pay and benefit changes are a result of a tighter job market and wage pressures are in some aspects an attempt to avoid giving labor unions and activists credit for a victory and an effort to mitigate some of the bad PR these companies face due to their poor labor practices.

ValuEngine continues its HOLD recommendation on MCDONALDS CORP for 2015-03-31. Based on the information we have gathered and our resulting research, we feel that MCDONALDS CORP has the probability to ROUGHLY MATCH average market performance for the next year. The company exhibits ATTRACTIVE Company Size but UNATTRACTIVE Book Market Ratio.

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Read our Complete Detailed Valuation Report on McDonald's HERE.

Below is today's data on MCD:

ValuEngine Forecast
	Target Price*	Expected Return
1-Month	97.44	0.00%
3-Month	97.74	0.31%
6-Month	97.67	0.23%
1-Year	97.45	0.01%
2-Year	99.43	2.05%
3-Year	94.99	-2.51%

Valuation & Rankings
Valuation	6.09% overvalued	Valuation Rank(?)	44
1-M Forecast Return	0.00%	1-M Forecast Return Rank	51
12-M Return	-0.60%	Momentum Rank(?)	54
Sharpe Ratio	0.74	Sharpe Ratio Rank(?)	88
5-Y Avg Annual Return	8.75%	5-Y Avg Annual Rtn Rank	67
Volatility	11.86%	Volatility Rank(?)	95
Expected EPS Growth	-5.01%	EPS Growth Rank(?)	21
Market Cap (billions)	94.83	Size Rank	100
Trailing P/E Ratio	18.54	Trailing P/E Rank(?)	64
Forward P/E Ratio	19.51	Forward P/E Ratio Rank	39
PEG Ratio	n/a	PEG Ratio Rank	n/a
Price/Sales	3.46	Price/Sales Rank(?)	28
Market/Book	9.37	Market/Book Rank(?)	14
Beta	0.37	Beta Rank	83
Alpha	-0.01	Alpha Rank	64

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