What To Expect From McDonald’s Stock Post Q4?

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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 fourth-quarter results on Tuesday, January 31. We expect MCD stock to likely see little to no movement with revenues coming almost in line but earnings missing expectations marginally in Q4 results. The weakening of all major currencies against the U.S. dollar has also been a major headwind for McDonald’s in FY 2022 so far, and the company expects it to impact fourth-quarter earnings as well. Additionally, rising costs also continue to bite into restaurant operating margins, necessitating price increases to offset inflation. In Q3, the company’s operating profit margin dropped from the near 50% rate the company set a year ago, to the current 39% – thanks to rising costs. In addition, the company says China has been a challenging operating environment due to ongoing Covid-19 infections. However, McDonald’s was able to offset China’s dismal sales with strong international revenue in Brazil and Japan, where licensees operate McDonald’s stores.

Our forecast indicates that McDonald’s valuation is $274 per share, which is in line with the current market price. Look at our interactive dashboard analysis on McDonald’s Earnings Preview: What To Expect in Fiscal Q4? for more details.

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

Trefis estimates McDonald’s Q4 2022 revenues to be around $5.7 Bil, almost in line with the consensus estimate. In Q3, McDonald’s revenue declined 5% y-o-y to $5.9 billion, on the back of currency headwinds. In terms of same-store sales, the U.S. saw a 6.1%  growth in the third quarter, thanks to price increases and promotions. Internationally, same-store sales growth saw a more impressive 8.5% increase. In International licensed markets, same-store sales jumped a remarkable 16.7%, even with China’s sales declines taken into account. In the U.S. alone, McDonald’s boasts over 25 million active members of its digital rewards program – contributing to a total of more than 43 million active users worldwide. We forecast McDonald’s Revenues to be $23 billion for the fiscal year 2022, down marginally y-o-y.

2) EPS is likely to miss consensus estimates marginally

McDonald’s Q4 2022 earnings per share (EPS) is expected to come in at $2.43 per Trefis analysis, marginally missing the consensus estimate. In Q3, MCD’s bottom line dropped 6%% y-o-y to $2.68, driven by rising costs.

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

Going by our McDonald’s Valuation, with an EPS estimate of around $9.99 and a P/E multiple of 27.5x in fiscal 2022, this translates into a price of $274, which is almost in line with 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 Jan 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MCD Return 4% 4% 126%
 S&P 500 Return 6% 6% 81%
 Trefis Multi-Strategy Portfolio 10% 10% 246%

[1] Month-to-date and year-to-date as of 1/27/2023
[2] Cumulative total returns since the end of 2016

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