McDonald’s stocks have seen a 12% decline year-to-date, currently priced at around $260 per share. This underperformance is attributed to rising costs, with investors concerned about the impact of price increases on consumer demand. The company’s Q1 conference call highlighted consumer pushback against menu price hikes, particularly concerning given their large proportion of lower-income customers. Despite headwinds in major markets and warnings of negative traffic trends in the U.S., McDonald’s potential for long-term growth lies in its digital and home-delivery strategies, financial strength, and ability to adapt to changing economic environments.
While MCD stock has shown strong gains, its performance has been inconsistent over the past few years. Returns were 25% in 2021, -2% in 2022, and 13% in 2023, underperforming the S&P 500 in two out of three years. The Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500, suggesting a more stable investment option in uncertain macroeconomic conditions. As oil prices rise and interest rates remain high, McDonald’s may face challenges similar to previous years and struggle to outperform the market.
In Q1, McDonald’s saw a 5% y-o-y revenue growth to $6.2 billion, driven by a 2% increase in global comparable sales. While this marked the 13th consecutive quarter of global same-store growth, it faced tough y-o-y comparisons. Adjusted bottom line also grew 2% y-o-y to $2.70, with 2024 capital expenditures expected to focus on new restaurant unit expansion. McDonald’s revenue model, with most restaurants being franchises that pay rent to the parent company, provides a steady income source that is resistant to inflation.
The forecast for McDonald’s revenues in fiscal year 2024 is $26.9 billion, up 5% y-o-y, with an EPS of 12.21. This translates to a valuation of $280 per share, based on a 22.9x P/E multiple for the fiscal year 2024. Comparisons with peers in the industry show McDonald’s positioning and potential for growth relative to other companies. Overall, McDonald’s stock may face challenges in the short term, but its long-term prospects remain strong due to its strategic initiatives and financial stability.
