What To Expect From McDonald’s Stock?

+1.08%
Upside
261
Market
264
Trefis
MCD: McDonald's logo
MCD
McDonald's

McDonald’s stock (NYSE: MCD), a restaurant chain consisting of more than 40,000 mostly franchised stores, is scheduled to report its fiscal second-quarter results on Tuesday, July 26. MCD’s stock looks fairly priced due to revenues and earnings likely matching expectations in its second-quarter results. The fast-food giant started fiscal 2022 with double-digit revenue and comparable sales growth in Q1 and looks well-positioned for future growth. The company is capitalizing on digital momentum with digital ordering options and drive-through services. We expect the company to continue to see this momentum in the fiscal second-quarter results as well.

Our forecast indicates that McDonald’s valuation is $264 per share, which is 4% higher than the current market price. Look at our interactive dashboard analysis on McDonald’s Earnings Preview: What To Expect in Fiscal Q2? for more details.

(1) Revenues expected to be in line with consensus estimates

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Trefis estimates McDonald’s Q2 2022 revenues to be around $5.8 Bil, in line with the consensus estimate. 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. In addition, the company’s 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. We forecast McDonald’s Revenues to be $23.6 billion for the fiscal year 2022, up 2% y-o-y.

2) EPS is also likely to match consensus estimates

McDonald’s Q2 2022 earnings per share (EPS) is expected to come in at $2.48 per Trefis analysis, matching the consensus estimate. In Q1, 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.

(3) Stock price estimate in line with the current market price

Going by our McDonald’s Valuation, with an EPS estimate of around $9.91 and a P/E multiple of 26.7x in fiscal 2022, this translates into a price of $264, which is almost 4% higher than the current market price. That said, the company’s stock appears appropriately valued at the current 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.

With inflation rising and the Fed raising interest rates, McDonald’s has fallen 5% this year. Can it drop more? See how low can MCD stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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 Jul 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MCD Return 3% -5% 109%
 S&P 500 Return 5% -17% 77%
 Trefis Multi-Strategy Portfolio 10% -16% 235%

[1] Month-to-date and year-to-date as of 7/25/2022
[2] Cumulative total returns since the end of 2016

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