What To Expect From McDonald’s Stock After Q1?

+28.19%
Upside
232
Market
297
Trefis
MCD: McDonald's logo
MCD
McDonald's

McDonald’s stock (NYSE: MCD), the world’s largest restaurant chain, consisting of more than 40,000 mostly franchised stores, is scheduled to report its fiscal first-quarter results on Thursday, April 28. We expect MCD’s stock to trade higher due to revenues and earnings beating expectations in its first-quarter results. 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. We expect the company to continue to see this momentum in the fiscal first-quarter results as well.

Our forecast indicates that McDonald’s valuation is $297 per share, which is 19% higher than the current market price. Look at our interactive dashboard analysis on McDonald’s Earnings Preview: What To Expect in Fiscal Q1? for more details.

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(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates McDonald’s Q1 2022 revenues to be around $5.8 Bil, 3% ahead of the consensus estimate. 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. For the full year of 2022, we forecast McDonald’s Revenues to be $24.9 billion, up 7% y-o-y.

2) EPS is also likely to be comfortably ahead of consensus estimates

McDonald’s Q1 2022 earnings per share (EPS) is expected to come in at $2.28 per Trefis analysis, 11 cents above the consensus estimate. In most of 2021, wages rose over 10% and food prices grew about 6%. Through a combination of price increases, aggressive cost cuts, and a push into more drive-thrus and delivery sales, the company managed to counter these pressures. Over the same period, operating income grew by 17%, outpacing revenue growth. As a result of that success, operating margins increased to 42.4% from 36.7% a year ago. Overall, McDonald’s is pushing forward with record profitability despite costs rising across the organization.

(3) Stock price estimate higher than the current market price

Going by our McDonald’s Valuation, with an EPS estimate of around $12.06 and a P/E multiple of 24.6x in fiscal 2022, this translates into a price of $297, which is almost 19% higher than the current market price.

It is helpful to see how its peers stack up. MCD Peers shows how McDonald’s stock compares against peers on metrics that matter. You will find other useful 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% 105%
 S&P 500 Return -8% -12% 86%
 Trefis Multi-Strategy Portfolio -8% -15% 233%

[1] Month-to-date and year-to-date as of 4/27/2022
[2] Cumulative total returns since the end of 2016

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