McDonald's (MCD) Last Update 6/24/22
Related: CMG KO PEP SBUX
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
McDonald's
$264.19
Yours
Trefis Price
N/A
$253
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


Trefis Report
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

McDonald's Company

VALUATION HIGHLIGHTS

  1. International Operated Markets constitute 50% of the Trefis price estimate for McDonald's's stock.
  2. U.S. constitutes 41% of the Trefis price estimate for McDonald's's stock.

WHAT HAS CHANGED?

Q1 Earnings Snapshot

In Q1, McDonald's revenue grew 11% y-o-y to $5.7 billion, on the back of a 12% growth in global comparable sales. Gains were strong internationally, helping lift a somewhat modest rise in U.S. sales of 3.5%. Price hikes accounted for most of the comp gains in Q1, which averaged 8% for the period - a large increase in normal times, but a relatively modest jump when considering the 8.5% and 8.3% jump in Consumer Price Index in the months of March and April, respectively. However, McDonald's bottom line dropped 28% y-o-y to $1.48, due to one-time charges related to taxes and suspended operations in Russia and Ukraine. After accounting for these factors, adjusted earnings of $2.28 per share grew 19% from year-ago levels. It should be noted that Russia accounts for nearly 9% of the company's total revenue.

Digital Sales Continue To Grow

Digital sales, which include mobile orders, in-store kiosk orders, and delivery, now account for 30% of total sales, a 60% gain y-o-y in Q1. The percent of McDonald’s restaurants offering delivery rose from 65% in Q1 2019 to 80% as of Q1 2022. Additionally, McDonald’s top six markets’ digital sales comprised more than 30% of system-wide sales, up from 20% in 2020. McDonald's has been able to weather the economic storm in part by keeping its customer loyalty program, MyMcDonald's Rewards, going strong since it relaunched it last year and saw membership grow to 26 million. McDonald's has long had a loyal customer base, but its digital initiatives have helped it drive more repeat business.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of McDonald's value that present opportunities for upside or downside to the current Trefis price estimate:

Average Revenue Per U.S. Restaurant: Historically, the Average Revenue per restaurant (both company-owned and franchised) has increased and as the company focuses on a combination of value and gourmet products, revenue per restaurant is likely to increase with higher ticket price. Further increasing guest count with higher comparable sales is likely to drive this metric further over our forecast period.

Number of franchise restaurants in high-growth markets: McDonald's is working towards a goal of being a 95% franchised entity and growth in the number of franchised restaurants is improving profitability. Further, as the company expands an adds more restaurants, systemwide sales are likely to grow.

BUSINESS SUMMARY

The Company franchises and operates McDonald’s restaurants, which serve a locally-relevant menu of quality food and beverages in communities across 119 countries. Of the 40,031 McDonald's restaurants at year-end 2021, 37,295, or 93%, were franchised. McDonald's franchisees typically don't own the building. These franchisees agree to rent their stores from the parent company, giving it an extra income in addition to franchise fees and other royalties.

McDonald’s essentially offers a uniform menu, though with minor variations to suit the local taste. A typical McDonald’s menu includes burgers, sandwiches, salads, snacks, breakfast sandwiches (McMuffins), beverages (soft drinks, coffee, milk shakes, juices), and desserts (ice cream, pies, smoothies).

McDonald's competes primarily with Wendy's and Burger King in the hamburger fast food category. It competes with Starbucks through McCafe.

SOURCES OF VALUE

McDonald's classifies its operations into the following three segments:

U.S. International Operated Markets International Developmental Licensed Markets and Corporate

We believe, the U.S. and International Operated Markets are the key sources of value for the company as it captures the growth in China and provides value for its customers in the U.S.

KEY TRENDS

McCafe gives McDonald's a strong presence in the specialty coffee segment

McCafe represents McDonald's foray into the high-margin caffeinated beverages market dominated by premium coffee chain Starbucks. McDonald's has been able to keep the prices competitive and margins healthy due to its excellent store network, its marketing muscle, and highly efficient supply chain. McCafe's menu has been extended to more than coffee and now includes fruit smoothies, mocha, and chocolate shakes.

Competition among the top fast-food chains to intensify in the breakfast segment

The breakfast market is proving to be a profitable segment, especially in the U.S. McDonald's is the dominant player in the breakfast segment with a market share of over 30%. McDonald's ensures new items are added to the breakfast menu regularly. However, it now faces serious competition as a number of rivals such as Dunkin' Brands, Restaurant Brands International, Taco Bell, and Starbucks have stepped up their game in the breakfast segment. Starbucks is in the process of reinvigorating its breakfast menu with the help of baked goodies launched under the La Boulange brand. Restaurant Brands International houses two well-renowned brands: Burger King and Tim Hortons, both of which are already a strong presence in the breakfast market. Dunkin' Donuts has also revamped its breakfast menu to cater to the needs of its customers.

Store Redesign, Value Meals To Drive Growth

McDonald's is in the process of converting its stores into "Experience Of The Future" restaurants, providing technological convenience to its customers. The company's focus on balancing its innovative gourmet offerings to attract millennials with its value focus to retain existing customers is likely to drive growth in the future.