McDonald’s (NYSE:MCD) has reported impressive Q2 results despite raising prices twice this year. We believe McDonald’s emerging markets strategy that emphasizes affordability, a focus on convenience and innovative marketing has led to this growth in addition to its solid execution in the U.S. market. China and Russia are two markets where McDonald’s is expanding aggressively, and the robust outlook for these markets as well as the continued execution in the US and Europe despite the macro uncertainty provides compelling growth opportunities for the company. McDonald’s competes with Wendy’s (NYSE:WEN), Subway, Burger King and Yum! Brands (NYSE:YUM). In the specialty coffee market, it competes with Starbucks (NASDAQ:SBUX).
We currently maintain a $84.90 price estimate for McDonald’s stock, which is roughly in line with the market price.
Emerging Markets Focus
We believe that McDonald’s efforts to expand its presence in the emerging markets has been paying off. For instance, Asia-Pacific, Middle East and Africa (APMEA) delivered strong comparable sales growth with China leading the way. This supported the company’s impressive 34% growth in operating income in the most recent quarter.
McDonald’s is averaging a new restaurant opening every day in China and plans to recruit 50,000 employees in China this year, including 1,000 university graduates as management trainees.
In addition to China, McDonald’s is planning to increase its investments in Russia as well. In 2010, the fast food chain opened over 30 restaurants investing around $174 million. Going forward, the company plans to open more stores in this region and expects to grow its store count by 15% each year. (See McDonald’s Invests in Russian Growth as Part of EM Focus)
There is still ample untapped potential for McDonald’s in these developing markets; however we want to see how growth in developed markets like the U.S. and Europe holds up in the coming quarters before we revise our estimates higher.
