We expect burger giant McDonald's Corp. (MCD - Free Report) to beat expectations when it reports first-quarter 2017 numbers on Apr 25, before the opening bell.
Last quarter, McDonald's posted a positive earnings surprise of 2.13%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the past ten quarters, with the trailing four-quarter average earnings surprise coming in at 5.67%.
Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that McDonald's is likely to beat earnings because it has the perfect combination of the two key ingredients.
Zacks ESP: Earnings ESP for McDonald's is +3.03% because the Most Accurate estimate is $1.36 while the Zacks Consensus Estimate is pegged lower at $1.32. A favorable Earnings ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: McDonald's currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of McDonald's favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.
What is Driving Better-than-Expected Earnings?
McDonald’s comps have improved in its key regions in the last few quarters, marking a trend that is likely to continue in the first quarter as well. This appears to be the result of the company’s strategic efforts to boost sales.
In sync with these efforts, the company has been focusing on product innovation, undertaking efficient marketing and promotions, trimming complicated menus to speed up service and rolling out more limited-time offerings to improve guest count and drive the top line.
Moreover, the rollout of the second phase of All Day Breakfast, its national value platform – McPick 2 and increased investments in technology-driven initiatives should further boost revenues.
However, a slowdown in emerging markets and soft industry growth could somewhat hurt sales, while high costs along with negative currency translation might dent the quarter’s profits.
Other Stocks to Consider
McDonald's is not the only company looking up this earnings season. Here are some other companies to consider from the Zacks categorized Retail–Restaurants industry, as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Restaurant Brands International Inc. (QSR - Free Report) has an Earnings ESP of +5.71% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) has an Earnings ESP of +17.24% and a Zacks Rank #3.
Panera Bread Company has an Earnings ESP of +2.21% and a Zacks Rank #3.
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