McDonald’s Corp.’s (MCD) focus on core brands, its image make-over program, and innovative marketing campaigns have been successful. After doubling margins in its U.S. operations, the company is turning its focus to Europe and APMEA (Asia/Pacific, Middle East and Africa), where company-operated restaurant margins lag the U.S. (by 110-350 basis points in the second quarter).

Re-franchising continues to be another engine of growth, bolstering return on assets by an expected 100 basis points on a less capital-intensive business and a steady growth in royalties. Finally, we think additional margin and return on equity expansion is possible as the company leverages its general and administrative expenses through cost control initiatives and uses the cash generated from operations to retire debt, distribute dividends, and pursue share repurchases.

From 2007 through 2009, the management expects to return approximately $15 billion to $17 billion to shareholders through dividends and share repurchases. We think this stock provides relative safety and moderate growth in a turbulent environment and exposure to faster-growing international markets. We keep our Buy rating and $68 price target on McDonald’s.

Read the full analyst report on MCD

“MCD” Free Stock Analysis: Buy? Sell? Hold?
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