McDonald's: Strong Business Momentum Makes Investors Happy
As eating places around the globe have begun re-opening following the easing of pandemic restrictions, McDonald’s appears to have benefitted from this pattern. Whereas the concern of the Delta variant nonetheless exists, it appears prospects nonetheless have an insatiable urge for food for McDonald’s ‘Joyful Meals.’
McDonald’s (MCD) operates and franchises McDonald’s eating places, quick-service eating places (QSRs) that serve a menu of meals and drinks in 119 international locations. The QSR large’s enterprise segments embody the U.S. and Worldwide Operated Markets (IOM). At present, 93% of the corporate’s eating places are franchised eating places.
I'm bullish on the inventory because the sturdy enterprise momentum continues for the corporate.
Within the second quarter, the corporate posted revenues of $5.89 billion, surpassing analysts’ projections of $5.53 billion. Diluted earnings got here in at $2.37 per share, higher than the $2.08 a share that analysts anticipated. World comparable gross sales have been additionally up by 40.5%.
McDonald's President and CEO, Chris Kempczinski, commented, “Our efficiency is a continued demonstration of the broad-based energy and resiliency of our enterprise as international comp gross sales within the second quarter elevated practically 7% over 2019. Alongside the way in which, we’ve all the time targeted on following our prospects’ wants, discovering probably the handiest and interesting methods for them to get pleasure from McDonald’s. It’s clear that our subsequent chapter shall be pushed by our management in digital.”
The strong outcomes have been pushed by stronger working performances throughout all the important thing segments, on elevated sales-driven restaurant margins. McDonald’s additionally benefited from fewer restaurant closures and the easing of COVID-19 restrictions. (See McDonald’s stock chart on TipRanks)
Moreover, the corporate’s gross sales by means of its digital channels ramped up strongly in Q2. McDonald’s year-to-date systemwide gross sales from digital channels, that's gross sales throughout its company-operated eating places or franchise-operated ones in its prime 6 markets, registered a 70% rise year-over-year, to $8 billion.
For FY21, the corporate now expects “full yr systemwide gross sales progress within the mid to excessive teenagers in fixed currencies.” But McDonald’s administration additionally cautioned that “there may be nonetheless some uncertainty as we proceed to see pandemic-related stops and begins in markets around the globe, particularly now with the Delta variant.”
In the USA, MCD’s gross sales momentum continued in Q2, as comparable gross sales grew 15% on a two-year foundation, its “strongest quarterly two-year progress in over 15 years.” The corporate administration acknowledged on its earnings name that this efficiency was a result of MCD’s “daring advertising initiatives, investing within the core menu and strengthening our digital choices.”
Yesterday, Robert W. Baird analyst David Tarantino additionally got here away bullish, and reiterated a Purchase and a value goal of $268 on the inventory, following a dialog with a big franchisee of McDonald’s within the U.S.
The franchisee indicated that whereas “shopper demand ranges have remained sturdy, however, signaled that gross sales momentum has slowed in current weeks as extra vital staffing shortages have led to throughput constraints.”
Regardless of the staffing shortages, analyst Tarantino was of the view that “a valuation premium may be justified by MCD’s strong working momentum, comparatively sturdy enterprise mannequin, and excessive free money circulate yield.”
On the subject of worldwide markets, the IOM section noticed comparable gross sales rise 75.1%, whereas worldwide developmental license gross sales elevated by 32.3%.
The corporate administration acknowledged on its earnings name that in relation to the third quarter, it expects “comps to surpass pre-pandemic ranges throughout all of our large 5 worldwide markets. The previous yr has proven us that when markets reopen, buyer demand for McDonald’s returns rapidly.”
Certainly, round every week again, Oppenheimer analyst Brian Bittner indicated that his analysis confirmed “continued enhancements throughout France, Germany, Italy and Spain which account for ~40% of IOM earnings. Following our full section evaluation, we maintain an upside bias to Avenue’s 2-year SSS for IOM over the subsequent two quarters of +4.3%/+4.7%.”
The analyst reiterated a Purchase and a value goal of $270 (9.6% upside) on the inventory.
Turning to the remainder of the Avenue, Wall Avenue analysts are bullish about McDonald’s, with a Robust Purchase consensus score, based mostly on 21 Buys and three Holds.
The average McDonald’s price target of $267.87 implies 8.7% upside potential from present ranges.
Disclosure: At the time of publication, Shrilekha Pethe didn't have a place in any of the securities talked about in this article.
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