ARCO

Brazil: Sorry For Your Losses

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The Brazilian equity markets are in free fall. “Brazil is in a deepening recession, which may grow into depression, as unemployment continues to rise and corporate credit quality deteriorates. Those that made a bundle investing in Brazil’s commodity-driven export boom have been looking to cash out, if they haven’t already, and the real continues to weaken on deteriorating sovereign credit and rampant inflation. Any interest rate hike by the US could have the unintended effect of sending Brazil’s local yields to the mid-teens to account for incremental currency risk and credit deterioration, which would only exacerbate debt service costs as a percentage of the country’s shrinking GDP. This, in turn, could be the catalyst for even more asset flight out … Read more

Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more

McDonald’s: Buyback-Driven Earnings Growth and Faltering US Comps

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McDonald’s shares continue to plow ahead as if nothing is wrong. Consolidated sales fell, net earnings dropped, US comps faltered, and all of the company’s EPS performance during the fourth quarter, results released January 23, was buyback driven. The company is trading at 22 times trailing earnings and holds a sizable net debt position. By Brian Nelson, CFA The Golden Arches introduced its all-day breakfast initiative in the US in October 2015, and we had been skeptical of its sustainable incremental contribution. We believed the efforts would only amount to a one-time shot in the arm to performance, if they were successful at all. For years, McDonald’s (MCD) had argued that serving breakfast all day would be a catastrophe when … Read more

Examining Same-Store Sales in the Restaurant Industry

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Key Takeaways September 2016 marked the fourth consecutive month of same-store restaurant sales declines, but the pressure is not indiscriminant. Millennials account for nearly a quarter of restaurant spending and are anticipated to account for 40% of restaurant purchases by 2020. Their preferences are becoming important considerations for the strategic planning of restaurants. Fast food restaurants with exposure to the coffee and breakfast segments appear to be faring better than those with limited or no exposure to the segments. Experiential dining is becoming increasingly important in the full-service arena as the gap between grocery prices and food away from home prices has widened of late.     By Kris Rosemann The broader restaurant sector (BITE) has been under pressure as of … Read more

Restaurant Traffic – What’s Going On?

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By Kris Rosemann What’s going on with restaurant stocks these days?  Sonic’s (SONC) announcement of preliminary results for the fiscal fourth quarter of 2016, ended August 31, has been the latest catalyst to drag the restaurant sector (BITE) lower due to it reporting “lower-than-expected traffic, reflecting lower consumer spending in restaurants and continued aggressive competitive activity.” Our newsletter portfolios have not been spared the pain as shares of Dividend Growth Newsletter portfolio holding Cracker Barrel (CBRL) have faced pressure since its fiscal fourth quarter report September 14, and Best Ideas Newsletter portfolio holding Buffalo Wild Wings (BWLD) has suffered as a result of the weak data as well. Sonic’s report was not the first we’ve been hearing of slowing consumer … Read more

McDonald’s Menu Initiatives Slipping

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By Kris Rosemann McDonald’s (MCD) shares took a hit after the burger giant reported second quarter results July 26, and we can’t say we are the least bit surprised. In fact, if we did, we would be flat out lying; we’ve been skeptical of its turnaround plan since it was released in May 2015, “Turnaround Plan at McDonald’s Does Not Fly With Franchisees.” It seems as though we’re beginning to see what we had been expecting, and what bullish McDonald’s investors had been hoping they wouldn’t so soon; that is a slowdown in comparable-store sales growth, particularly in the US. Global comparable store sales growth came in at 3.1%, not a bad number in itself, but short of consensus expectations … Read more

Restaurant Roundup; Valuations Overcooked

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Image source: McDonald’s Investor Relations page By Kris Rosemann McDonald’s Comps Still Expanding McDonald’s (MCD) continues to believe in the turnaround strategy it implemented about a year ago, and the market appears to be on board as well. The company’s biggest appeal remains its brand recognition, and the above screen grab of its ‘Investor Relations’ page on the corporate site hints that it is well aware of this. Nevertheless, the burger giant has had a solid string of quarters as of late. Global comparable sales in the first quarter of 2016 increased more than 6% from the year-ago period, and US comparable sales grew 5.4% thanks to the broad acceptance of its All Day Breakfast strategy. We were skeptical of … Read more

5 Reasons to Consider Not Owning McDonald’s

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1. Difficult Comps to Come in Late 2016/Early 2017 McDonald’s (MCD) has come roaring back to life. The company reported strong third-quarter performance October 22 and posted an impressive 4% global comparable sales growth rate in the period. We thought the fundamental performance was great, even though consolidated revenue and consolidated operating income dropped 5% and 2% in the quarter on a reported basis, respectively. On a year-over-year basis, constant-currency performance showed 7% top-line growth and 10% operating-income growth, both of which we thought were solid. That said, the market seems to be accepting the report as evidence that McDonald’s is permanently back on track, but we’re striking a more cautious tone. We think the quarterly results and a few … Read more

Holy Guacamole! McDonald’s Wishing It Had Kept Chipotle

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Very few investors probably remember that Chipotle (CMG) used to be owned in part by McDonald’s (MCD). McDonald’s had originally taken a stake in Chipotle in February 1998, when Chipotle had but 14 restaurants in Denver. The maker of the Big Mac would go on to own 90% of the subsidiary and eventually spin it off in an initial public offering in January 2006. McDonald’s would receive ~$1.5 billion from the sale, but with Chipotle’s market capitalization now at over $20 billion, it’s clear the burger-and-fries behemoth exited way too early. The most recently-reported results by both restaurants tell the diverging story quite well. McDonald’s reported relatively disappointing second-quarter results Tuesday. The performance can best be described as flat. Global … Read more