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 Thursday, July 27. We expect MCD stock to likely trade lower with revenues and earnings missing expectations marginally in Q2 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 Q1 2023. While the menu price increase offset this significant headwind in Q1, we expect it to possibly impact second-quarter earnings. The company noted that some customers were trimming their orders in response to price increases, with fries being a common budget casualty. That said, any further customer pushback on the price increases could lead to revenue declines. Also, margins in 2023 could also be impacted by commodity, utility, and labor inflation.
Our forecast indicates that McDonald’s valuation is $266 per share, which is almost 10% lower 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.
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(1) Revenues expected to be slightly below consensus estimates
Trefis estimates McDonald’s Q2 2023 revenues to be around $6.2 Bil, slightly below the consensus estimate. In Q1 2023, the company’s top line was up 4% year-over-year (y-o-y) at $5.9 billion. It should be noted that its Q1 comparable sales grew by almost 13%, both globally and across each segment. – thanks to price increases and marketing promotions. Successful menu and marketing campaigns 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. The company’s rewards program boasted nearly 50 million 90-day active members across its top six markets as of March 31. 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 $3.7 billion as of April 2023. 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 Q2 2023 earnings per share (EPS) is expected to come in at $2.76 per Trefis analysis, marginally missing the consensus estimate. In Q1, MCD’s earnings per share grew 15% y-o-y to $2.63. McDonald’s disciplined cost management helped total operating expenses remain relatively flat in the quarter. Also, a reduction in the company’s outstanding share count from share repurchases explains the much faster rise in profitability as compared to its revenues.
(3) Stock price estimate lower than the current market price
Going by our McDonald’s Valuation, an EPS estimate of around $10.60 and a P/E multiple of 25.1x in fiscal 2023, translates into a price of $266, which is almost 10% 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.
What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.
|S&P 500 Return||2%||18%||103%|
|Trefis Multi-Strategy Portfolio||6%||26%||305%|
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