McDonald’s stock is set to report its fiscal second-quarter results on July 29, with expectations of trading higher based on beating revenue and earnings expectations marginally. The stock has experienced a decline this year, falling from around $297 to $251, underperforming the broader market. Price increases have been a key part of McDonald’s strategy to offset inflation costs, but consumer pushback due to continual menu price increases may impact overall demand. With a larger proportion of lower-income customers, pricing power could be a future issue. Investors will closely monitor these metrics in the upcoming second-quarter results, with a negative industry traffic forecast for the U.S. in 2024. Despite warning signs, McDonald’s long-term potential looks promising due to its aggressive digital and home-delivery push, solid cash reserves, and ability to navigate challenging economic environments. The stock’s current valuation suggests the potential for long-term growth.
McDonald’s stock has shown strong gains over the past three years, increasing from $200 in early January 2021 to around $251, but underperforming the S&P 500. In 2023, the stock saw returns of 15%, compared to 24% for the S&P 500. Consistently beating the market has been challenging for individual stocks in recent years, with some heavyweight consumer discretionary sector stocks also struggling. The Trefis High Quality Portfolio, however, has outperformed the S&P 500 each year, providing better returns with less risk. As uncertainties such as high oil prices and elevated interest rates persist, the question remains whether McDonald’s will repeat its underperformance in 2023 or see a strong jump in the future.
Trefis forecasts McDonald’s valuation to be $280 per share, 11% higher than the current market price, based on an analysis of the company’s earnings in fiscal Q2. Revenues are expected to slightly exceed consensus estimates, with global comparable sales growth of 2% driving an increase in revenue. Despite challenges such as boycotts affecting traffic in certain regions, McDonald’s continues to see growth. With significant capital expenditures focused on new restaurant unit expansion, the company remains well-positioned to drive revenue growth in the coming year. Additionally, McDonald’s unique franchise model provides a steady source of inflation-resistant income, with franchises agreeing to rent their stores from the parent company.
Earnings per share for McDonald’s in Q2 2024 are projected to beat consensus estimates marginally, coming in at $3.10 per Trefis analysis. The adjusted bottom line grew 2% year-over-year to $2.70, indicating a positive trend in earnings performance. With a higher stock price estimate than the current market price, McDonald’s valuation indicates strong potential for future growth. The EPS estimate of $12.21 and a P/E multiple of 22.9x in fiscal 2024 translate to a price of $280, nearly 11% higher than the current market price. Comparisons with peers in the industry also suggest McDonald’s stock is positioned favorably for market-beating performance. With a focus on revenue growth, earnings performance, and valuation expectations, McDonald’s is poised for a positive outlook in the coming quarters. Investors will be closely monitoring the company’s Q2 results for further insights into its financial performance and future prospects.
