Retail restaurant giant McDonald’s Corporation (MCD) announced impressive first-quarter results, showcasing the success of its “Accelerating the Arches” strategy. With a remarkable 12.6% growth in comparable sales, attributed to a well-balanced approach of strategic menu price increases and positive traffic growth, MCD is demonstrating resilience in the face of market uncertainties.
Therefore, investors could consider investing in the stock this month for the reasons discussed throughout this article.
Despite the heightened market volatility, MCD shares have gained 20.7% over the past year and 18.3% over the past nine months to close the last trading session at $290.30. MCD is trading above its 200-day moving average of $271.20.
Here’s what could influence MCD’s performance in the upcoming months:
Global Strategic Partnership to Enhance McDelivery Experience
On May 9, 2023, MCD and Glovo agreed to a new, long-term global strategic partnership that will evolve their existing agreement to provide consumers and MCD’s franchisees with the convenience and value of McDelivery through the Glovo platform worldwide.
The partnership will strengthen the companies’ relationship in Glovo’s core markets, increasing choice and selection on the platform for consumers, and enhancing the consumer experience when using the Glovo platform to order McDelivery.
Robust Financials
During the first quarter ended March 31, 2023, MCD’s revenues increased 4% year-over-year to $5.90 billion. The company’s operating income increased 9.5% year-over-year to $2.53 billion. Its non-GAAP net income rose 13.5% over the previous-year quarter to $1.94 billion.
Also, its non-GAAP EPS came in at $2.63, representing an increase of 15.4% year-over-year.
Consistent Dividend Payment History
MCD paid a quarterly cash dividend of $1.52 per share on June 20, 2023
MCD’s annual dividend of $6.08 yields 2.06% on the prevailing market price, and its four-year average yield is 2.24%. The company has raised its dividend payouts at a CAGR of 6.6% over the past three years and 8.4% over the past five years. Moreover, the company has raised its dividend payments for the past 21 years consecutively.
High Profitability
MCD’s trailing-12-month gross profit margin of 57.53% is 63.2% higher than the 35.25% industry average. Its trailing-12-month EBIT and EBITDA margins of 45.41% and 53.45% are 519.7% and 403.3% higher than the respective industry averages of 7.33% and 10.62%.
Moreover, its trailing-12-month levered FCF margin of 21.37% is 495.5% higher than the 3.59% industry average. MCD’s trailing-12-month ROTC and ROTA of 15.49% and 13.22% are 154.04% and 264.85% higher than their respective industry averages of 6.10% and 3.62%.
Favorable Analyst Estimates
Street expects MCD’s revenue to rise 9.4% year-over-year to $6.26 billion in the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to increase 8.7% from the previous-year quarter to $2.77.
Additionally, the consensus revenue estimate of $25.04 billion for the fiscal year 2023 reflects a growth of 8% from the prior year. The consensus EPS estimate of $11.12 for the same year indicates a 10.1% year-over-year improvement.
In addition, the company has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
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 considering 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 also has a B for Growth, aligned with its robust financial performance in the recent quarter.
It has a B grade for Stability, consistent with its 24-month beta of 0.64.
Among the 45 stocks in the A-rated Restaurants industry, MCD is ranked #5.
Click here to access MCD’s Sentiment, Value and Momentum ratings,
Bottom Line
Chris Kempczinski, President and CEO of MCD, expressed that the company’s focus on operational excellence through the global Performance and Customer Excellence (PACE) initiative has led to significant improvements in customer satisfaction worldwide. This should help the company gain a competitive advantage in the fast-food industry.
Despite a challenging operating environment, MCD continues to experience robust customer demand. Also, its strong fundamentals have supported its solid record of dividend growth.
Considering its robust financials, high profitability, optimistic analysts’ expectations, and remarkable dividend growth history, I think the stock might be a solid buy this month.
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) rating: Biglari Holdings Inc. Class B (BH), Arcos Dorados Holdings Inc. (ARCO), and Nathan’s Famous, Inc. (NATH).
What To Do Next?
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MCD shares were unchanged in premarket trading Friday. Year-to-date, MCD has gained 12.53%, versus a 15.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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