19% Gains Left For McDonald’s Stock?

+2.44%
Upside
234
Market
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Trefis
MCD: McDonald's logo
MCD
McDonald's

After a 14% growth over the last month, at the current price of around $254 per share, we believe McDonald’s Corporation stock (NYSE: MCD), the world’s largest restaurant chain, consisting of more than 40,000 mostly franchised stores – could see a further rise. MCD stock has increased from $223 to $254 in the last month, outperforming the broader indices, with the S&P growing almost 8% over the same period. The fast-food giant capped off a strong 2021 with double-digit revenue and comparable sales growth and looks well-positioned for future growth. That said, the company is capitalizing on digital momentum with digital ordering options and drive-through services. The company also delivered its best annual 2021 earnings per share level of $10.04 in the last decade.

In McDonald’s Q4 report, its revenues and earnings came in higher than our estimates. The company’s fourth-quarter revenue increased 13% year-over-year, helped by a 12.3% increase in global comparable sales. Even in the more mature U.S. market, comparable U.S. sales rose 7.5% y-o-y or 13.4% over a two-year period. The bulk of rising sales at McDonald’s was due to improving demand at existing locations, largely driven by partnerships with third-party food delivery aggregators such as Uber and DoorDash.

We have updated our model following the Q4 release. We forecast McDonald’s Revenues to be $24.9 billion for the next fiscal year 2022, up 7% y-o-y. Looking at the bottom line, we now forecast EPS to come in at 12.06. Given the changes to our revenues and earnings forecast, we have revised our McDonald’s Valuation to $297 per share, based on $12.06 expected EPS and a 24.6x P/E multiple for the fiscal year 2022 – almost 19% higher than the current market price. That said, the company’s stock appears cheap at current levels.

While McDonald’s has shuttered its stores in Russia until further notice due to the ongoing invasion of Ukraine, it is costing the company a relatively modest $50 million per month. To give a better perspective, MCD generated approximately $23 billion in revenue in 2021. As such, McDonald’s business should be unaffected by the ongoing war in Ukraine, but intensifying economic sanctions or a refugee crisis across the European continent could make the situation worse. In such a case, it is likely that the broader markets may see lower levels in the near term. And, any dip in MCD stock can be used as a buying opportunity for better gains in the long run.

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While MCD stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how McDonald’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MCD Return 1% -7% 106%
 S&P 500 Return -1% -6% 101%
 Trefis Multi-Strategy Portfolio 0% -8% 262%

[1] Month-to-date and year-to-date as of 4/8/2022
[2] Cumulative total returns since the end of 2016

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