CHICAGO (Reuters) - Shares of McDonald's Corp <MCD.N> fell as much as 8 percent on Friday, as a survey of franchisees showed December same-store sales grew at the lowest level in the six-year history of the poll.
By Brad Dorfman
CHICAGO (Reuters) - Shares of McDonald's Corp <MCD.N> fell as much as 8 percent on Friday, as a survey of franchisees showed December same-store sales grew at the lowest level in the six-year history of the poll.
The survey of 31 domestic franchisees, representing 195 restaurants of the nearly 14,000 in the United States, showed same store sales were up juts 1.8 percent.
Sales in the west rose just 0.4 percent, versus 1.9 percent in the east and 3.7 percent in the central United States, according to the survey conducted by restaurant stock analyst Mark Kalinowski.
!ADVERTISEMENT!McDonald's share decline led a downturn in many other U.S. restaurant stocks, amid concerns a U.S. recession could hurt even lower-priced restaurants.
"With gas (gasoline) prices at all-time highs, the discretionary income of the consumer is shrinking," said William Lefkowitz, options strategist at vFinance Investments.
But shares of P.F. Chang's China Bistro Inc <PFCB.O> bucked the restaurant trend, rising over 11 percent after the casual dining chain raised its fourth-quarter outlook due mainly to better-than-expected December sales.
McDonald's stock had done well through 2007 posting a 33 percent increase for the year while the Standard & Poor's 500 index <.SPX> rose only 3.5 percent.
The company has seen strong sales growth overseas, while U.S. sales have been boosted by newer items like chicken snack wraps and improved coffee.
But that performance also left the stock at a vulnerable level, some analysts said.
McDonald's shares were down 6.8 percent at $54.21 in afternoon trading on the New York Stock exchange, after falling as low as $53.32 earlier in the session.
Coming into Friday, the stock traded at a multiple of 20 times estimated 2008 earnings, the third highest multiple in the Dow Jones Industrial average <.DJI>. It trailed only Coca-Cola Co <KO.N> and Procter & Gamble <PG.N>, two stocks that have been boosted by their defensive status as consumers generally buy things like soap and soft drinks even during a recession.
"The P/E (price-to-earnings ratio) is back to a level where for me it's a little bit expensive," Janna Sampson, co-chief investment officer at Oakbrook Investments in Lisle, Illinois, said. "That said, relative to some of its competitors, I'd have to say its P/E still looks reasonable." Sampson's company holds about 205,000 McDonald's shares.
Yum Brands Inc <YUM.N>, which owns Taco Bell, Pizza Hut and KFC chains traded at 23 times estimated 2008 earnings before Friday. Like McDonald's, that company has an extensive overseas presence, which could help shelter it from a U.S. recession.
"People were hoping that their international growth would offset decreased sales in the United States," Lefkowitz said of McDonald's. "However, investors are starting to believe that international growth will not be able to do that."
On Friday, Friedman, Billings, Ramsey resumed coverage of McDonald's at a "market perform" rating with a 12-month price target of $53. But analyst Howard Penney said McDonald's should be able to sustain U.S. same-store-sales growth in the first half of 2008.
"We believe that McDonald's premium valuation reflects the company's ability to post continued positive same-store-sales trends," Penney wrote in a research note.
Some analysts were also skeptical of the notion that consumers would stop eating at McDonald's in a down economy.
"For the most part, fast food seems to be becoming more of a consumer staple," Morningstar analyst John Owens said. "That was the case in previous downturns in the consumer cycle."
Yum shares were down 5.4 percent at $36.89. P.F. Chang's stock was up 11.4 percent to $24.30.
Overall, the Dow Jones U.S. restaurant and bars index <.DJUSRU> was down 5.4 percent.
(Additional reporting by Doris Frankel and Lisa Baertlein)
