UPDATED: April 29, 2022
McDonald’s Corporation (NYSE: MCD) has made investors happy with its better-than-expected results for the first quarter of 2022. Shares of this food-service provider rose 2.8% to close at $254.19 on Thursday.
The company operates through the McDonald’s chain of franchises and restaurants in more than 100 countries. Exiting the first quarter, 93% of at least 40,000 McDonald’s restaurants were franchised to local business owners.
Presently, the burger-maker has a Strong Buy consensus rating based on 14 Buys and four Holds. It scores a ‘Perfect 10’ on TipRanks.
In addition, McDonald’s price forecast of $279.81 mirrors 10.08% upside potential from current levels. The stock’s price movement has been impressive with an 8.1% gain recorded in the past year.
Let’s see what is keeping investors interested in McDonald’s.
Impressive Q1 Performance
The $188-billion fast-food chain operator’s earnings of $2.28 per share in the first quarter of 2022 surpassed the consensus estimate of $2.17 per share by 5.1%. Also, revenues of $5.67 billion exceeded the consensus estimate of $5.59 billion by 1.4%.
On a year-over-year basis, the company’s earnings per share grew 19% and consolidated revenues reflected an increase of 11%. Sales from company-operated restaurants grew 7% while that from franchised restaurants expanded 13%. Other revenues were up 17% year-over-year in the quarter.
McDonald’s U.S. comparable sales grew 3.5% from the year-ago quarter, while the global comparable sales increased 11.8%. Operating income grew 1% year-over-year.
Remarkably, the data provided by the TipRanks Website Traffic tool seem to support the company’s positive results for the first quarter. According to the tool, visits to the McDonald’s site (corporate.mcdonalds.com) increased 14.05% in March versus February and a whopping 304.9% year-to-date in 2022 versus 2021-level.
Robust Growth Drivers
McDonald’s believes in enriching its customers’ experience by ensuring food quality and a friendly approach towards people from all communities. Also, taking good care of its employees and the animals in the supply chain, and contributing to the betterment of the planet (including actions to achieve net-zero level gas emissions by 2050 and building sustainable Happy Meal toys by 2025) are its priorities.
These qualities, along with the company’s brand power, and a delicious menu (usually adjusted to keep the taste and preferences of the local people in mind) enhance McDonald’s competitive position in the industry. Its iconic offerings include Chicken McNuggets, French fries, and Big Mac.
Further, strengthening digital channels (which generated revenues of $18 billion in 2021 and $5 billion in the first quarter of 2022), and sound marketing efforts (especially the loyalty programs) are part of the company’s plan to expand its businesses.
In March, the company entered into a strategic agreement with Just Eat Takeaway.com N.V. Per this long-term deal, McDonald’s will use Just Eat Takeaway’s global presence to expand its McDelivery business.
McDonald’s President and CEO, Chris Kempczinski, said, “By staying on the side of the consumer and executing our strategy, Accelerating the Arches, we have continued to drive growth. It is why I believe there has never been a better time to be part of brand McDonald’s.”
Headwinds and Tailwinds in Q2
McDonald’s is likely to release its second-quarter 2022 results on July 27, 2022. The consensus estimate for earnings and revenues stands at $2.50 per share and $6 billion, respectively.
The aforementioned growth drivers and recovery in international markets are likely to impact McDonald’s results in the second quarter of 2022. Also, the company’s efforts to expand the net restaurant units might aid the top-line results in the quarter. Investments to boost technology and digital capabilities are other anticipated tailwinds. The introduction of new items, like a new version of McCafe Ice Coffee in the Australian markets, is expected to win hearts.
On the flip side, inflation in labor and commodity costs, and supply chain restrictions might hurt the second quarter. Also, forex woes are predicted to have adversely impacted earnings, which are anticipated within the $0.08-$0.10 per share range in the second quarter.
Worth highlighting here is that McDonald’s temporary decision in response to the Ukraine-Russia war had a negligible impact on its first-quarter revenues. It closed restaurants in Ukraine by the end of February and in Russia by the mid of March. These markets accounted for just 2% of the company’s revenues in 2021.
Despite the temporary closures, the company continued to pay lease payments and salaries to employees, and provide support to those in the supply chain. This led to an adverse of $27 million in the operating results and $0.13 per share in earnings. Also, the company recorded inventory-related costs of $100 million in the quarter.
With the war still on, impacts of the company’s decision related to the conflict might be visible in the second quarter as well.
Positively Skewed Analysts’ Opinions
On April 28, Jeff Farmer of Gordon Haskett reiterated a Buy rating on McDonald’s while increasing the price target to $290 (14.09% upside potential) from $280.
Another analyst, Jared Garber of Goldman Sachs kept a Buy rating and the price target of $264 (3.86% upside potential) intact on MCD.
Further, Peter Saleh of BTIG maintained a Buy rating on MCD with a price target of $280 (10.15% upside potential).
He added, “We expect McDonald’s to lean further into its digital strategy to not only drive traffic to its stores, but to capture valuable consumer data which will eventually inform decisions around menu strategy, promotions, plant-based meat and other offerings.”
Other Favorable TipRanks’ Data
Per the tools provided by TipRanks, 80% of financial bloggers have a Bullish stance on MCD versus the sector average of 68%.
The Crowd Wisdom tool suggests a Very Positive stance of investors on MCD. In the past 30 days, 5.6% of portfolios on TipRanks increased exposure to the stock.
Further, Hedge Fund Confidence signal is Very Positive for MCD. This is evident from a 217.2 thousand increase in the number of MCD shares owned by hedge funds in the last quarter.
Insider’s activities have been impressive with corporate insiders having bought MCD stocks worth $244.2 thousand in the last three months. Insider Confidence Signal is Positive on MCD.
Conclusion
In February, the National Restaurant Association projected the U.S. food service industry to generate revenues of $898 billion in 2022. Incremental jobs in the industry were predicted to be 400,000 in the year and total jobs to be 14.9 million at the end of 2022.
McDonald’s is rightfully loved by investors as it is well-positioned to leverage from the company- and industry-specific tailwinds and effectively deal with the near-term hurdles.
Learn more about the Website Traffic tool in this video by Youtube sensation Tom Nash.
Read full Disclaimer & Disclosure
