McDonald's sells debt to fund China expansion
The bond issuance exemplifies the level of faith of investors in the company and its strong fundamentals.
McDonald's currently trails Yum Brands (YUM) in number of restaurants in China and therefore plans to beef up its presence in the country. The bond issuance exemplifies the level of faith of investors in the company and its strong fundamentals.
The stock has fallen more than 10% in 2012 so far but we have a price estimate of $98 for McDonald's, which is about 7% above the current market price.
McDonald's issues debt at record low
McDonald's sold $400 million of 7-year notes with a 1.875% coupon at 2.022% (or 88 basis points above similar Treasury notes) and $500 million of 3-year notes with a 0.75% coupon at 0.843% (or 45 basis points above Treasury notes). Earlier this year, McDonald's sold its $500 million of 30-year bonds for another record low of 3.7%. McDonald's market cap is currently around $93 billion.
The company expects to incur an expenditure of $2.9 billion in 2012, up almost 10% from 2011, as it plans to add another 1,300 restaurants worldwide and reimage its existing restaurants.
Special emphasis on China
In China, the company will open around 225 to 250 new restaurants. At the end of 2011, it had around 1,400 restaurants in the country, most of which were company-operated. The company also plans to hire a whopping 70,000 people in China by the end of the year, almost doubling the current workforce of 80,000. Setting up company-operated restaurants requires a lot more expenditure than setting up a franchised restaurant.
The company plans to increase drive-thrus, dessert kiosks and extend hours of its restaurants in the country to attract more customers to boost same-store sales. Therefore, the overall investment in the country will witness an increase of 50%.
It also plans to put a greater focus on the breakfast segment in the country, something which it has successfully done at home. Currently, 8% to 10% of its revenues in China are derived from breakfast but the company plans to double those figures in the next few years.
Read our previous article, How McDonald's Keeps Winning Over Its U.S. Customers
More Trefis stories
- AT&T Looks To Reduce Subsidy Pressures While Boosting Revenues Through Shared Data Plans
- Microsoft Working At Migrating Other Platform Apps to Windows Phone
- Costco’s Vying For A Stronger Online Presence
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
New sources of supply in the US and overseas will inevitably take a toll on the market.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.