What To Expect From McDonald’s Q4 After Stock Up 13% Since 2023?

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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 Monday, February 5. We expect MCD stock to likely see little to no movement with revenues and earnings matching expectations in Q4 results. The weakening of all major currencies against the U.S. dollar has been a major headwind for McDonald’s so far in FY 2023. However, the menu price increases have been able to offset this significant headwind in the fiscal three quarters of 2023. It will be interesting to watch if customers start to trim their orders in response to price increases in the upcoming Q4 report. That said, McDonald’s has been able to weather the current 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 57 million 90-day active members across its top six markets as of September 30. 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 $3.5 billion as of September 2023.

MCD stock has shown strong gains of 40% from levels of $215 in early January 2021 to current levels now, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. However, the increase in MCD stock has been far from consistent. Returns for the stock were 25% in 2021, -2% in 2022, and 13% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that MCD underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MCD face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that McDonald’s valuation is $297 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 in line with consensus estimates

Trefis estimates McDonald’s Q4 2023 revenues to be around $6.4 Bil, matching the consensus estimate. In Q3 2023, the company’s top line was up 14% year-over-year (y-o-y) at $7 billion. The company’s revenue in franchised restaurants was almost $4 billion in Q3 2023 compared to nearly $3.7B in Q3 2022. For company-owned restaurants, revenue was ~$2.6B, up almost 24% y-o-y. It should be noted that its Q3 global comparable sales grew by almost 11%, with strong growth across each segment – thanks to price increases, marketing promotions, and positive guest count. Successful menu and marketing campaigns and continued digital and delivery growth contributed to strong comparable sales results. Looking ahead, McDonald’s expects to add about 1,500 net restaurants for the year. The restaurant operator guided for a full-year adjusted operating margin of around 47%. We forecast McDonald’s Revenues to be $25.4 billion for the fiscal year 2023, up 10% y-o-y.

2) EPS is likely to match consensus estimates 

McDonald’s Q4 2023 earnings per share (EPS) is expected to come in at $2.82 per Trefis analysis, in line with the consensus estimate. In Q3, MCD’s consolidated operating income increased 16% y-o-y to $3.2 billion. The company’s net income was $2.3 billion, or $3.17 per share vs. $1.9 billion a year ago or $2.68 per share.

(3) Stock price estimate aligns with the current market price

Going by our McDonald’s Valuation, an EPS estimate of around $11.58 and a P/E multiple of 25.7x in fiscal 2023, translates into a price of $297, which is almost inline 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.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 MCD Return 2% 13% 145%
 S&P 500 Return 1% 28% 119%
 Trefis Reinforced Value Portfolio 0% 38% 607%

[1] Returns as of 2/2/2024
[2] Cumulative total returns since the end of 2016

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