McDonald’s Stock To Gain After Q3 Earnings?

+4.72%
Upside
252
Market
264
Trefis
MCD: McDonald's logo
MCD
McDonald's

[Updated 11/12/2021] McDonald’s Update

McDonald’s (NYSE:MCD) rose by 3%, after its Q3 2021 results, to $251 currently. In Q3 2021 the company saw a rise in Global comparable sales by 12.7% y-o-y led by the International Developmental Licensed segment which rose by 16.7% y-o-y. Meanwhile, Comparable sales in The International Operated segment rose by 13.9% y-o-y, and the U.S. segment rose by 9.6% y-o-y. Total Revenue beat consensus estimates as it grew by 14% y-o-y to $6.2 billion in Q3 2021. 

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We believe the company will continue to see a positive revenue and earnings growth as the restrictions have eased and the vaccination drive continues. We expect McDonald’s revenues to rise by 24.1% to $23.8 billion in 2021. Further, its net income is likely to grow to $7.1 billion as recovery post Covid-19 gains pace, increasing its earnings per share to $9.72. In FY 2022 revenue is expected to grow further to $25.6 billion while Net Income is expected to increase to $8 billion. This will take the EPS to $11.27, which coupled with the P/E multiple of 24.3x will lead to McDonald’s valuation of around $274, which is more than 9% above its current market price.

[Updated 06/01/2021] Will Easing Of Restrictions Continue To Drive McDonald’s Growth? 

McDonald’s (NYSE: MCD), a global fast food chain, has seen its stock rise continuously over the years. It has risen by 36% since the end of 2017 and at the current price of $234 we believe it has a potential upside of around 9%. The company had witnessed a revenue fall from $22.8 billion in 2017 to $21.4 billion in 2019 due to re-franchising nearly 95% of the total restaurants across the world. In 2020 revenue fell to $19.2 billion primarily due to the Covid-19 pandemic which saw various restrictions placed on restaurants globally. Recovery was seen in the second half of 2020 and the momentum continued in Q1 2021 as the company beat consensus estimates by posting revenue of $5.1 billion, up 9% y-o-y while diluted earnings were $2.05 per share compared to $1.47 per share in the same period of the previous year.

We believe the company will see a positive revenue and earnings growth as the restrictions continue to ease and the vaccination drive continues. We expect McDonald’s revenues to rise by 10.5% to $21.2 billion in 2021. Further, its net income is likely to grow to $5.5 billion as recovery post Covid-19 gains pace, increasing its earnings per share to $7.48, which coupled with the P/E multiple of 34.3x will lead to McDonald’s valuation of around $256, which is more than 9% above its current market price.

[Updated 03/05/2021] McDonald’s Update

At the current price of around $205, McDonald’s stock (NYSE: MCD) has a potential upside of around 24%. McDonald’s, a global fast food company, saw its stock rise by 16% from 2018 to now, compared to the S&P 500 which has gained 50% since the end of 2018. The company has seen revenues falling in recent years while its P/E ratio has risen. 

Due to the Covid-19 crisis, McDonald’s saw revenue fall by 9% in 2020 to $19.2 billion, while earnings per share fell to $6.35 compared to $7.95 in the previous year. The fall was primarily due to the shutdown of restaurants during the Covid-19 lockdowns and lower footfall due to continuing restrictions in various regions.

We expect McDonald’s revenues to rise by 10.6% to $21.2 billion in 2021. Further, its net income is likely to grow to $5.5 billion as recovery post Covid-19 gains pace, increasing its earnings per share to $7.48, which coupled with the P/E multiple of 34.1x will lead to McDonald’s valuation of around $255, which is nearly 24% above its current market price.

[Updated 11/13/2020] Up 10% In 2020, Does McDonald’s Stock Have More Upside?

After a 10% rise this year, at the current price near $215 per share, we believe McDonald’s stock (NYSE: MCD) has a moderate upside in the near term. MCD stock has increased from $197 to $218 since the start of the year compared to the S&P 500 which also increased by 10% in 2020. The stock has performed in line with the market despite a fall in revenues for the first 2 quarters of 2020. For Q3 2020 revenue were nearly flat at $5.4 billion while earnings improved to $2.37 compared to $2.13 in the same period of the previous year. Revenue and earnings recovery were driven by a 4.6% growth in systemwide sales in the US. We expect systemwide sales to continue recovery in Q4 2020 and the stock price to rise along with it.

The 27% rise in MCD stock price between 2017 to 2019 is justified by significant growth in earnings during those two years. McDonald’s revenue fell 7.6% from $22.8 billion in 2017 to $21.1 billion in 2019. This effect was offset by margins increasing from 22.8% to 28.6% during this period. On a per share basis, earnings went up from $6.43 to $7.95. Higher margins were driven by an overall increase in restaurants and continuous re-franchising.

During the same period, the P/E multiple fell from 27x to 25x. The P/E improved in recent weeks as the company and sector are showing signs of recovery. Currently the multiple stands at 27x.

Where Is The Stock Headed?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending. McDonald’s revenues and earnings took a hit for the first half of 2020, but in Q3 2020 reported flat revenue and a growth in earnings compared to the same period in 2019. Q3 2020 also saw systemwide sales recover (up 4.6% y-o-y) in the US market compared to Q2 2020 where we saw a huge decline due to lockdowns affected across regions.

While McDonald’s stock is likely to move higher in the near term, there are several peers in its sector that look like a Better Bet Than MCD Stock. Also, McDonald’s Peer Comparisons summarizes how the company fares against peers on metrics that matter.

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