Shares of American fast-food icon McDonald’s (MCD) are down around 10% over the past three months.
In response to the Russian invasion of Ukraine, many firms, McDonald’s included, had plans to suspend their Russian operations. This would take a small bite out of operating earnings in coming quarters, given McDonald’s has around 850 stores in Russia.
To complicate matters further, reports came in that many McDonald’s franchises in Moscow continue to operate despite the recent suspension.
It could be more challenging for the firm to convince many franchisees to temporarily halt operations since they still have bills to pay. While the McDonald’s brand could face backlash or even boycotts over the matter, I do think that the stock has already fallen too hard, too fast.
In due time, I suspect McDonald’s will look to get a better grasp over its franchisees operating in Russia as the Ukrainian invasion continues. In the meantime, MCD stock has already become one of the bigger blue-chip losers over the Ukraine-Russia crisis.
Once the horrific invasion does come to an end (hopefully sooner rather than later), McDonald’s stock could be in for a considerable alleviation of intense selling pressures.
Still, it is incredibly tough to tell when a peaceful resolution could be in the cards with Russia’s latest push into Mariupol. For that reason, many are playing it cautiously with a stock that was built to do well through times of great uncertainty. I’m bullish.
Recession on the Horizon?
McDonald’s Russian exposure may be more significant than your average U.S.-traded firm, but it’s not that sizeable.
Russian and Ukrainian stores account for ~2% of systemwide sales, under 3% of operating income, and ~9% of revenue. McDonald’s can afford to temporarily suspend its Russian operations. The real risk could be from the backlash in response to the firm’s failure to get its franchisees to pause.
In any case, I do think that long-term fundamentals are still in play, especially if we are headed for a global recession.
The short-term U.S. Treasury yield curve seems to be pointing to a slightly higher risk of recession moving forward, even as the Fed sees a “soft landing” amid its interest rate hikes.
The last thing the Fed wants to do is scare investors. Given “transitory” inflation has grown more persistent than expected, it’s difficult to take Fed chair Jerome Powell’s words as gospel.
Wall Street’s Take
According to TipRanks’ rating consensus, MCD stock comes in as a Strong Buy. Out of 25 analyst ratings, there are 22 Buy recommendations and three Hold recommendations.
The average McDonald’s price target is $286.50, implying 20.7% upside potential. Analyst price targets range from a low of $260 per share to a high of $314 per share.
Bottom Line on MCD Stock
How McDonald’s will get its Russian operators to follow instructions remains a mystery. As the Ukraine-Russia crisis worsens, MCD stock could fall further, perhaps towards its 52-week lows of around $217 per share.
With a solid 2.2% dividend yield and a modest 23.7 times trailing earnings multiple, it’s hard to pass up on the stock.
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