McDonald's (MCD): Low Risk, Low Reward

McDonald’s (MCD) blew away estimates yesterday for its global May comparable sales by posting 7.7% growth vs. a 3.2% consensus. Credit Suisse raised estimates slightly and was impressed:

MCD continues to show solid execution, with an ongoing focus on product introductions, marketing and convenience driving a global May sales comp of 7.7% vs. our est. of 3.7% and consensus of 3.2%.

However, CS fails to see much upside:

In our opinion, MCD shares don’t have the upside potential of some of its higher growth/beta peers; however, impressive global May comps during a period of record oil prices remind us of the defensive characteristics that make MCD a great holding for longer-term investors, especially for those concerned about the consumer.

Given excellent execution, a global platform with high franchise ownership, strong cash flows, and smart capital management, we believe MCD will continue to be a low risk investment. But, with the requisite lower risk comes lower reward, and, also taking into account difficult prior year comps for much of 2008 and a valuation that fairly reflects the lower risk, we remain comfortable with our 12-month Neutral rating.

Credit Suisse maintains NEUTRAL, target price $63.

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