McDonald's juggernaut continues as consumers trade down

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Shares of McDonald's Corp. (MCD) are little changed over the past year, which in this dismal stock market is a performance that is nothing short of spectacular.

Nutritionists and foodies may howl but the American people are flocking to the Golden Arches in droves. Today the restaurant chain reported that global same-store sales rose 1.4 percent. But if you exclude the extra day in February 2008 because of leap year, sales rose 5.4 percent. In the United States, sales increased 2.8 percent (6.8 percent excluding the segment's calendar shift) helped by premium chicken sandwiches and its breakfast offerings.

About the only thing that is slowing McDonald's down are things beyond its control. The strong dollar will slash first quarter revenue by at least $600 million and earnings by seven to nine cents per share. Rising commodity prices also are expected to hurt results.

McDonald's is benefiting from what economists and Wall Street pundits call "trading down." With unemployment topping 8 percent, consumers are feeling too poor to go out to dinner at a local restaurant but feel they can afford to treat themselves to a quick meal courtesy of Ronald McDonald. There are few signs that the company's growth is slowing down.

"With more and more customers trading down from the fast casual chains, McDonald's is well positioned in this environment," said Morningstar analyst R.J. Hottovy, who has a fair value estimate on the No. 1 restaurant chain of $59, in an interview. "Maybe fast food is where you turn to in this economy."

The company's push into coffee also appears to be paying off. The company is putting the squeeze on Starbucks Corp. (SBUX) through its McCafe line of coffees. McDonald's is planning to incorporate a coffee house concept into its front counters, Dow Jones said. Further helping the company was its decision to offer all coffee for the same price regardless of size.

The company will take a gain of 3 cents to 4 cents per share from the sale of its minority interest in Redbox Automated Retail, LLC., the company's last non-McDonald's venture.

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