by Popular restaurant operator McDonald’s (MCD) announced fourth-quarter results that exceeded expectations despite unfavorable macroeconomic conditions. However, as market volatility has increased, the stock has fallen over the last few months and appears to be trading at a discount. This may be the right opportunity to invest in large-cap stocks. Read on.
After a series of good economic data, the Federal Reserve is expected to raise interest rates above initial market expectations. Investors, however, should not hold back from investing in high-quality stocks that have the potential to return despite anticipated turmoil.
I think restaurant giant McDonald’s Corporation (MCD), which is currently trading at a discount, could be a solid investment. Although the stock is down 3.7% in the last three months, it seems poised for long-term gains.
Despite market uncertainty, MCD shares gained 18% over the past year, closing the last trading session at $262.03. Its market capitalization is $191.67 billion.
For non-GAAP forward P/E ratios, the MCD of 25.94x is 5.5% lower than the five-year average of 29.46x. This 21.61x forward EV/EBIT is 3.1% lower than the five-year average of 22.29x. Moreover, its futures EV/EBITDA multiple of 18.31 is 2.4% lower than the five-year average of 18.77.
The restaurant giant reported better-than-expected financial results for the fourth quarter that ended in December 2022. Same-store sales increased thanks to higher menu prices, more guests and more marketing efforts. Digital sales in the company’s six leading markets also totaled $7 billion, accounting for more than 35% of total sales in the same quarter.
Chris Kempczinski, President and CEO of the company, said: “Our Accelerating the Arches strategy drives growth and builds brand strength, delivering outstanding full-year performance in 2022, with comparable sales growth of more than 10% and comparable guest growth of 5% per year. around the world. “
MCD’s $6.08 annual dividend yields 2.32% of the prevailing market price, with a four-year average return of 2.26%. The company has increased its dividend payouts at a CAGR of 6.4% over the past three years and 8.3% over the past five years.
Here’s what could impact MCD’s results in the coming months:
Solid finances
MCD franchise restaurant revenue increased 7.5% year-over-year to $3.65 billion in the fiscal fourth quarter ending December 31, 2022. Its operating income increased 7.7% from the prior quarter to 2, USD 58 billion.
In addition, its non-GAAP net income increased 13.3% year-over-year to $1.90 billion, while non-GAAP net income was $2.59, up 16.1% year-on-year to year.
High profitability
MCD’s 12-month gross profit margin of 56.97% is 62.8% higher than the industry average of 35%. Its 12-month EBIT margin of 44.62% is 486.8% higher than the industry average of 7.60%. The 12-month net profit margin of 26.65% is 482.5% higher than the industry average of 4.57%.
Moreover, its 12-month FCF leveraged margin of 22.75% is well above the industry average of 1.52%. ROTC and ROTA MCD over 12 months of 14.77% and 12.25% are 133.7% and 208.7% higher than their industry averages of 6.32% and 3.97%.
Favorable estimates of analysts
Analysts expect MCD revenue for the second quarter ending June 2023 to be $6.09 billion, up 6.5% year-over-year. The company’s EPS for the same quarter is expected to increase by 4.3% from the previous quarter to $2.66.
The consensus estimate of revenue of $24.40 billion for fiscal year 2023 reflects an increase of 5.2% over the previous year. The consensus estimate of EPS of $10.59 for the same year shows an improvement of 4.8% year-on-year. In addition, the company exceeded consensus estimates of EPS in each of the last four quarters, which is impressive.
POWR’s ratings are promising
The MCD is rated B overall, which means a purchase on our POWR rating system. POWR ratings are calculated based on 118 different factors, each of which is weighted to an optimal degree.
Our proprietary rating system also rates each stock based on eight distinct categories. MCD is rated A for quality, synchronized with high profitability.
It has a B rating for stability and sentiment, according to the 24-month beta of 0.64 and optimistic analyst estimates.
Among 46 companies in the restaurant industry with a B rating, MCD ranks 9th.
To access MCD growth, value, momentum and sentiment ratings, click here.
bottom line
Despite macroeconomic volatility, the MCD is trading above its 200-day moving average of $259.38. Strong fundamentals support a solid dividend growth record. Raising the dividend for 21 consecutive years.
Moreover, while MCD expects short-term inflationary pressures to continue into 2023, the company is confident in its Accelerating the Arches plan, which emphasizes opening new restaurants. The company’s recently announced Accelerating the Organization initiative aims to increase efficiency and innovation.
Given the solid fundamentals and remarkable record of dividend growth, I think the stock could be a solid buy.
How McDonald’s Corporation (MCD) works Compare with your peers?
MCD has an overall POWR rating of B, equivalent to a Buy rating. Check out other restaurant stocks rated A (Strong Buy) or B (Buy): Potbelly Corporation (PBPB), Good Times Restaurants Inc. (GTIM) and Nathan’s Famous, Inc. (NATH).
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MCD shares fell $0.03 (-0.01%) in pre-market trading on Monday. Year-to-date, the MCD is down 0.00% compared to the S&P 500’s 0.91% gain over the same period.
About the author: Kritika Sarmah
Her interest in risky instruments and love of writing made Kritika a financial analyst and journalist. She earned a BA in Commerce and is currently pursuing a CFA program. Its fundamental approach is designed to help investors identify untapped investment opportunities.
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