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Should You Bite Into McDonald's Stock Ahead of Q2 Earnings?
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Shares of McDonald’s (MCD - Free Report) gained 0.6% on Wednesday, just one day ahead of its upcoming earnings release. However, like most other U.S. equities, it bounced up and down before ultimately closing up for the day. This doesn’t tell us much, but we can take a look at MCD’s quarterly estimates and fundamentals to see what’s really going on.
McDonald’s stock has underperformed recently, gaining only 1% over the last year and shedding about 8% on a year-to-date basis. MCD has sacrificed revenues over the last few years in order to push its re-franchising strategy. Nearly 92% of the company’s restaurants are currently franchised, with the overarching goal being to reach 95%. This shrinks the top line because company-operated sales are replaced by franchised sales. However, this will lead to EPS growth and ROE expansion in the long run.
MCD saw itself making headlines for the wrong reasons earlier this week when hundreds of customers in Illinois were sickened by an intestinal parasite after eating contaminated lettuce. The firm has since replaced its supplier and began reoffering salads, but this could potentially lead to a Chipotle (CMG - Free Report) – like drop in consumer trust.
But what should investors expect from the company’s latest report? Let’s take a closer look.
Latest Outlook & Valuation
According to our latest Zacks Consensus Estimates, McDonald’s is expected to report earnings of $1.92 per share on revenues of $5.32 billion. These results would represent year-over-year growth of 11% and a loss of 12.1%, respectively.
Of course, top and bottom line growth estimates are just two of the many things investors will be concerned with when MCD reports its quarterly financial results. We can also turn to our exclusive non-financial metrics consensus estimate file to help prepare.
The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.
According to these consensus estimates, McDonald’s franchised revenue is projected to reach $2.76 billion. This would mark a nearly 11% climb from the year ago period when the company reported franchised revenues of about $2.49 billion. Meanwhile, company-operated sales are expected to plunge another 36% from $3.57 billion to $2.63 billion.
Lastly, MCD’s is projected to operate 1,897 franchised restaurants in high growth markets, representing a 10.2% sequential and 4.7% year-over-year boost, respectively.
Furthermore, heading into Thursday, McDonald’s was trading with a Forward P/E of 19.8x, which marks a very slight premium to the broader “Consumer Discretionary” market average of 19.1x.
Earnings ESP Whispers
Investors will also want to understand what chance McDonald’s has to surprise investors with better-than-expected earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.
This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
MCD is currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of 0.39%. In other words, our model suggests that MCD could be poised to top estimates.
Surprise History
MCD’s earnings surprise history and the effect that these surprises have had on its share prices are two other important factors to consider ahead of its earnings report.
McDonald's Corporation Price, Consensus and EPS Surprise
We can see that MCD has continued to post solid earnings results, topping quarterly estimates in the last 15 quarters. But these beats do not always lead to positive momentum following MCD’s quarterly release.
We judge the price effect of earnings surprises by comparing the closing price of the stock two days before the report and two days after the report. McDonald’s stock has turned positive in five out of these last eight windows.
McDonald’s is scheduled to report its latest quarterly earnings Thursday morning.
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It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Should You Bite Into McDonald's Stock Ahead of Q2 Earnings?
Shares of McDonald’s (MCD - Free Report) gained 0.6% on Wednesday, just one day ahead of its upcoming earnings release. However, like most other U.S. equities, it bounced up and down before ultimately closing up for the day. This doesn’t tell us much, but we can take a look at MCD’s quarterly estimates and fundamentals to see what’s really going on.
McDonald’s stock has underperformed recently, gaining only 1% over the last year and shedding about 8% on a year-to-date basis. MCD has sacrificed revenues over the last few years in order to push its re-franchising strategy. Nearly 92% of the company’s restaurants are currently franchised, with the overarching goal being to reach 95%. This shrinks the top line because company-operated sales are replaced by franchised sales. However, this will lead to EPS growth and ROE expansion in the long run.
MCD saw itself making headlines for the wrong reasons earlier this week when hundreds of customers in Illinois were sickened by an intestinal parasite after eating contaminated lettuce. The firm has since replaced its supplier and began reoffering salads, but this could potentially lead to a Chipotle (CMG - Free Report) – like drop in consumer trust.
But what should investors expect from the company’s latest report? Let’s take a closer look.
Latest Outlook & Valuation
According to our latest Zacks Consensus Estimates, McDonald’s is expected to report earnings of $1.92 per share on revenues of $5.32 billion. These results would represent year-over-year growth of 11% and a loss of 12.1%, respectively.
Of course, top and bottom line growth estimates are just two of the many things investors will be concerned with when MCD reports its quarterly financial results. We can also turn to our exclusive non-financial metrics consensus estimate file to help prepare.
The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.
According to these consensus estimates, McDonald’s franchised revenue is projected to reach $2.76 billion. This would mark a nearly 11% climb from the year ago period when the company reported franchised revenues of about $2.49 billion. Meanwhile, company-operated sales are expected to plunge another 36% from $3.57 billion to $2.63 billion.
Lastly, MCD’s is projected to operate 1,897 franchised restaurants in high growth markets, representing a 10.2% sequential and 4.7% year-over-year boost, respectively.
Furthermore, heading into Thursday, McDonald’s was trading with a Forward P/E of 19.8x, which marks a very slight premium to the broader “Consumer Discretionary” market average of 19.1x.
Earnings ESP Whispers
Investors will also want to understand what chance McDonald’s has to surprise investors with better-than-expected earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.
This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
MCD is currently a Zacks Rank #3 (Hold) and sports an Earnings ESP of 0.39%. In other words, our model suggests that MCD could be poised to top estimates.
Surprise History
MCD’s earnings surprise history and the effect that these surprises have had on its share prices are two other important factors to consider ahead of its earnings report.
McDonald's Corporation Price, Consensus and EPS Surprise
McDonald's Corporation Price, Consensus and EPS Surprise | McDonald's Corporation Quote
We can see that MCD has continued to post solid earnings results, topping quarterly estimates in the last 15 quarters. But these beats do not always lead to positive momentum following MCD’s quarterly release.
We judge the price effect of earnings surprises by comparing the closing price of the stock two days before the report and two days after the report. McDonald’s stock has turned positive in five out of these last eight windows.
McDonald’s is scheduled to report its latest quarterly earnings Thursday morning.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>