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McDonald’s (MCD - Free Report) is set to report its Q2 earnings before the market opens on Friday. YTD, MCD stock is up 21%, slightly more than the S&P’s 17.5% gain. Now the question is will MCD’s second-quarter earnings results help boost the fast food chain.
Overview
Headquartered in Chicago, McDonald’s is the world’s largest restaurant chain by revenue. McDonald’s has over 37,000 locations worldwide, with around 14,000 of those in the U.S. A majority of McDonald’s locations are franchises, with just roughly 2,600 corporate-owned restaurants. The franchise model sees owners pay a percentage of sales to McDonald’s, along with rent, as the burger giant owns most of the stand-along buildings.
In March 2017, McDonald’s announced its Velocity Growth Plan. Along with growing its customer base, the plan focuses on growing McDonald’s delivery program through Uber Eats (UBER - Free Report) and improving customer experiences with technology. One of the major steps the company took was acquiring Dynamic Yield. McDonald’s will use Dynamic Yield's technology to provide personalized suggestions on drive thru displays based on time of day, weather, trending menu items and other factors.
MCD is currently trading with a PEG of 2.95, which is higher than its industry average of 2.23. Although McDonald’s has historically traded with a higher PEG than its industry, the gap between the two has grown increasingly smaller over the past year 12 months, which could suggest that the stock is relatively undervalued.
McDonalds has also been a solid dividend stock for years. The company increased its dividend 7% in Q4 2017 and then raised it by another 14.8% in Q4 2018. This brought its current annual dividend to $4.64 a share, with MCD’s yield resting at 2.2% at the moment.
Q2 Earnings & Outlook
Our Zacks Consensus Estimates call for revenue of $5.33 billion in Q2, a very slight decrease from $5.35 billion in Q2 2018. Since Q2 2014, McDonald’s has seen its year-over-year revenue decline every quarter.
Although the company posted an official decline of 3.6% for Q1 2019 revenue, much of the decline was due to the strength of the U.S. dollar relative to other currencies. On a constant currency basis, McDonalds saw its revenues pop 2%, which is something investors should keep in mind. Much of the constant currency revenue increase for Q1 was attributed to 5.4% growth in same-store sales. Comparable sales is a highly important metric in the retail world, especially for chains of this size.
Looking into the specifics for Q2 revenue expectations, our Key Company Metrics expect a 7.9% decrease in company operated sales. This decrease is expected to be offset by a more than 6% increase in franchise revenue, the company’s largest revenue stream.
Our Non-Financial Metrics also expect McDonald’s to continue expanding the number of total locations it has worldwide. The company is also expected to increase the percentage of franchised locations, something it has been trying to do the past few years.
Meanwhile, EPS is expected to be $2.06, a 3.52% increase. Quarterly EPS has seen year-over-year growth five out of the past six quarters and this quarter is expected to continue the positive trend.
Bottom Line
If McDonald’s can continue to expand and increase its same store sales, it could provide a significant boost to the stock. With that being said, McDonald’s stock may still be a solid choice given its dividend and solid value.
McDonald’s has such a large presence across the world that it should not be going anywhere anytime soon. Its large size and historical success make it a relatively safe investment in a company that hopes to expand its business through digital and mobile ordering, as well as delivery.
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Buy McDonald's (MCD) Before Q2 Earnings?
McDonald’s (MCD - Free Report) is set to report its Q2 earnings before the market opens on Friday. YTD, MCD stock is up 21%, slightly more than the S&P’s 17.5% gain. Now the question is will MCD’s second-quarter earnings results help boost the fast food chain.
Overview
Headquartered in Chicago, McDonald’s is the world’s largest restaurant chain by revenue. McDonald’s has over 37,000 locations worldwide, with around 14,000 of those in the U.S. A majority of McDonald’s locations are franchises, with just roughly 2,600 corporate-owned restaurants. The franchise model sees owners pay a percentage of sales to McDonald’s, along with rent, as the burger giant owns most of the stand-along buildings.
In March 2017, McDonald’s announced its Velocity Growth Plan. Along with growing its customer base, the plan focuses on growing McDonald’s delivery program through Uber Eats (UBER - Free Report) and improving customer experiences with technology. One of the major steps the company took was acquiring Dynamic Yield. McDonald’s will use Dynamic Yield's technology to provide personalized suggestions on drive thru displays based on time of day, weather, trending menu items and other factors.
MCD is currently trading with a PEG of 2.95, which is higher than its industry average of 2.23. Although McDonald’s has historically traded with a higher PEG than its industry, the gap between the two has grown increasingly smaller over the past year 12 months, which could suggest that the stock is relatively undervalued.
McDonalds has also been a solid dividend stock for years. The company increased its dividend 7% in Q4 2017 and then raised it by another 14.8% in Q4 2018. This brought its current annual dividend to $4.64 a share, with MCD’s yield resting at 2.2% at the moment.
Q2 Earnings & Outlook
Our Zacks Consensus Estimates call for revenue of $5.33 billion in Q2, a very slight decrease from $5.35 billion in Q2 2018. Since Q2 2014, McDonald’s has seen its year-over-year revenue decline every quarter.
Although the company posted an official decline of 3.6% for Q1 2019 revenue, much of the decline was due to the strength of the U.S. dollar relative to other currencies. On a constant currency basis, McDonalds saw its revenues pop 2%, which is something investors should keep in mind. Much of the constant currency revenue increase for Q1 was attributed to 5.4% growth in same-store sales. Comparable sales is a highly important metric in the retail world, especially for chains of this size.
Looking into the specifics for Q2 revenue expectations, our Key Company Metrics expect a 7.9% decrease in company operated sales. This decrease is expected to be offset by a more than 6% increase in franchise revenue, the company’s largest revenue stream.
Our Non-Financial Metrics also expect McDonald’s to continue expanding the number of total locations it has worldwide. The company is also expected to increase the percentage of franchised locations, something it has been trying to do the past few years.
Meanwhile, EPS is expected to be $2.06, a 3.52% increase. Quarterly EPS has seen year-over-year growth five out of the past six quarters and this quarter is expected to continue the positive trend.
Bottom Line
If McDonald’s can continue to expand and increase its same store sales, it could provide a significant boost to the stock. With that being said, McDonald’s stock may still be a solid choice given its dividend and solid value.
McDonald’s has such a large presence across the world that it should not be going anywhere anytime soon. Its large size and historical success make it a relatively safe investment in a company that hopes to expand its business through digital and mobile ordering, as well as delivery.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>