McDonald’s stock (NYSE: MCD), a restaurant chain consisting of more than 40,000 mostly franchised stores, is scheduled to report its fiscal first-quarter results on Tuesday, April 25. We expect MCD stock to likely trade lower with revenues and earnings missing expectations marginally in Q1 results. The weakening of all major currencies against the U.S. dollar has also been a major headwind for McDonald’s in FY 2022, and we expect it to impact first-quarter earnings as well. Rising costs continue to bite into restaurant operating margins, necessitating price increases to offset inflation. Its operating profit margin dropped from the near 45% rate the company set in 2021 to the current 40% in fiscal 2022 – thanks to rising costs. That said, MCD also warned that commodity, utility, and labor inflation could likely continue to be a drag on margins in 2023 as well.
Our forecast indicates that McDonald’s valuation is $266 per share, which is almost 9% lower 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 below consensus estimates
Trefis estimates McDonald’s Q1 2023 revenues to be around $5.5 Bil, slightly below the consensus estimate. In 2022, the company’s top line was flat year-over-year (y-o-y) at $23.2 billion. It should be noted that MCD’s full-year 2022 comparable sales grew by over 10%, and comparable guest counts grew by 5% – thanks to more customer visits, price increases, and marketing promotions. Successful menu and marketing campaigns, such as the Cactus Plant Flea Market promotion and McRib, and continued digital and delivery growth contributed to strong comparable sales results. McDonald’s has been able to weather the economic storm in part by keeping its customer loyalty program, MyMcDonald’s Rewards, going strong since it relaunched in 2021. Its membership stands at 28 million in the U.S. During the pandemic, the company accumulated cash reserves to prepare for recessions, going from cash holdings of $898 million in 2019 to $4.7 billion cash on hand by 2021. The company invested much of that cash in the drive-thru and delivery services and still has plenty of cash sitting at $2.6 billion as of December 2022. We forecast McDonald’s Revenues to be $24.6 billion for the fiscal year 2023, up 6% y-o-y.
2) EPS is likely to miss consensus estimates marginally
McDonald’s Q1 2023 earnings per share (EPS) is expected to come in at $2.28 per Trefis analysis, marginally missing the consensus estimate. In 2022, MCD’s earnings per share fell 17% y-o-y to $8.33.
(3) Stock price estimate lower than the current market price
Going by our McDonald’s Valuation, with an EPS estimate of around $10.60 and a P/E multiple of 25.1x in fiscal 2023, this translates into a price of $266, which is almost 9% lower 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.
|S&P 500 Return||1%||8%||85%|
|Trefis Multi-Strategy Portfolio||2%||10%||246%|
 Month-to-date and year-to-date as of 4/24/2023
 Cumulative total returns since the end of 2016