Leading foodservice retailer McDonald's Corporation (MCD) operates and franchises McDonald’s restaurants with nearly 40,000 locations in over 100 countries. The company reported impressive financials in the third quarter ended September 30, 2022.
MCD beat the consensus EPS and revenue estimates in the last reported quarter. Its EPS and revenue were 3.9% and 3% above analyst estimates. Its global comparable sales rose 9.5% year-over-year, while the U.S. comparable sales increased 6.1%.
MCD’s President and CEO Chris Kempczinski said, “Our third quarter 2022 performance demonstrated broad-based business momentum as global comparable sales increased nearly 10%. I remain confident in our Accelerating the Arches strategy as our teams around the world continue to execute at a high level.”
“As the macroeconomic landscape continues to evolve and uncertainties persist, we are operating from a position of competitive strength. I also want to thank our franchisees, who have done a tremendous job navigating this environment, while providing great value to our customers,” he added.
MCD’s strong fundamentals have allowed it to raise dividends for 46 consecutive years. Its dividend payouts have increased at a 6% CAGR over the past three years and an 8% CAGR over the past five years. Its current dividend yield is 2.23%, while its four-year average yield is 2.27%. The company will pay a quarterly dividend of $1.52 on December 15, 2022.
The stock has gained 1.6% in price year-to-date and 8.6% over the past year to close the last trading session at $272.27.
Here’s what could influence MCD’s performance in the upcoming months:
Robust Financials
MCD’s revenues from franchised restaurants increased 4.6% year-over-year to $3.67 billion for the third quarter ended September 30, 2022. Its total operating costs and expenses declined 3.3% year-over-year to $3.10 billion.
The company’s non-GAAP net income for nine months ended September 30, 2022, increased 5.3% year-over-year to $5.58 billion, and its non-GAAP EPS rose 6.5% year-over-year to $7.51.
Mixed Analyst Estimates
Analysts expect MCD’s EPS for fiscal 2022 and 2023 to increase 7.1% and 5.7% year-over-year to $9.94 and $10.51, respectively. Its revenue for fiscal 2022 is expected to decline 1% year-over-year to $22.98 billion.
On the other hand, its revenue for fiscal 2023 is expected to increase 3.1% year-over-year to $23.69 billion. It has surpassed Street EPS estimates in three of the trailing four quarters.
High Profitability
In terms of the trailing-12-month gross profit margin, MCD’s 56.13% is 56.9% higher than the 35.78% industry average. Likewise, its 51.82% trailing-12-month EBITDA margin is 365.2% higher than the industry average of 11.14%. Furthermore, the stock’s 8.84% trailing-12-month Capex/Sales is 193.6% higher than the industry average of 3.01%.
POWR Ratings Show Promise
MCD has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MCD has an A grade for Quality, in sync with its high profitability.
It has a B grade for Stability, consistent with its 0.65 beta.
MCD is ranked #17 out of 45 stocks in the B-rated Restaurants industry. Click here to access MCD’s Growth, Value, Momentum, and Sentiment ratings.
Bottom Line
MCD is trading above its 50-day and 200-day moving averages of $254.09 and $250.50, respectively, indicating an uptrend. Despite the strong macroeconomic headwinds, MCD registered strong top and bottom-line gains in the last quarter. Due to the brand’s worldwide recognition, it managed to grow strongly despite the slowdown in consumer spending.
Given its strong fundamentals, impressive dividend growth, and high profitability, it could be wise to buy the stock for the long term.
How Does McDonald's Corporation (MCD) Stack up Against Its Peers?
MCD has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Restaurants industry with an A (Strong Buy) or B (Buy) rating: Nathan's Famous, Inc. (NATH), Good Times Restaurants Inc. (GTIM), and RCI Hospitality Holdings, Inc. (RICK).
MCD shares were trading at $270.82 per share on Tuesday morning, down $1.45 (-0.53%). Year-to-date, MCD has gained 2.71%, versus a -14.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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