Long MCD – 7/8/15 Call Replay and Slides
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Our LONG thesis on McDonald’s is focused on three key points:
MCD has given up a lot of share to competitors as they have made many self-inflected wounds. We think that with the new CEO and the right initiatives in place they will reverse this trend, and steal back the share they lost.
Sales trends have been dismal over the last few years, and if you had to choose one thing to blame it on it would MCD’s lack of value. MCD has drifted away from providing value to their customers, but they are returning to the value message now with national advertising.
The menu was getting too complicated, it is very apparent that as the menu increases in size, sales decline.
Reducing CAPEX is going to be a big accelerator of growth. We used SBUX as an example, once they cut CAPEX, focused on their current stores and closed underperforming ones, you see a drastic increase in EBITDA growth. We expect to see the same from MCD as they close stores and reduce CAPEX.
We see very minimal downside in the stock given it has been trading so far below its peers for the last 3-5 years.
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Takeaway: Births slowing, although 2Q15 looking better than we initially anticipated.
NATIONAL AND LOCAL SLOWING
Our Maternity Tracker continues to update with high frequency. The data appears to run with a high degree of fidelity with CDC birth data reported through December 2014 with an R-square of 0.89.
The Maternity Tracker shows a slowing trend across the months of April to July. The April trend has been updated to cover a significant data gap we uncovered during our validation process. As a result, April 2015 reversed what we believed previously to be a negative trend to +1.8% nationally.
MD & HCA SLOWING
MD: We remain short MD, but the maternity trend has not developed to the downside at our previously anticipated pace for 2Q15. Our best estimate for 2Q15 is +0.7% based on the state-weighted trend. We will be reviewing other data including ACA Tracker data (published shortly) and the Delivery Index from the June OB/GYN Survey (published shortly).
HCA: The state-weighted growth rate for HCA is starting off 2Q15 strong, but has since weakened alongside national trends. Similar to MD, we'll be rolling up additional data to look at the probability of a positive pre-announcement for 2Q15. Our preliminary look at Medicaid enrollment, per enrollee spending as well as the JOLTS data released yesterday, suggest the answer is yes, but we'll have more later. We covered this data yesterday in the studio --> CLICK HERE
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