Analysing McDonald’s Q1 Earnings

McDonald’s Corporation (NYSE:MCD) saw its stock hit a record high of $236.10 per share Friday following the release of a first-quarter earnings report that saw $5.1 billion in revenue, up from $4.7 billion one year earlier, and net income of $1.54 billion, up from $1.11 billion.

Same-store sales in the U.S. were up 13.6%. year-over-year and global same-store sales climbed 7.5%.

Here’s what five analysts covering the Golden Arches had to say after the print. 

Cowen On ‘Dynamite’ McDonald’s Quarter: “Impressively, MCD noted the impact of March’s $1,400 stimulus checks are waning yet momentum in the business is sustaining,” Cowen analyst Andrew Charles said in a note. 

The chicken sandwich launched by McDonald’s Feb. 24 exceeded expectations, the analyst said.

He also highlighted the company’s renewed focus on the breakfast market share, recalling that it “represented 25% of pre-COVID-19 sales and faced perhaps the greatest market share battle.”

Charles envisions this mealtime segment as offering “an opportunity to repurpose the chicken recipe at breakfast.”

And the debut of McDonald’s loyalty program will leverage 20 million U.S. app downloads, he said.

“Looking ahead, we believe MCD is well positioned to deliver 3%+ U.S. comps in 2022 and beyond, with remodels that are substantially complete and the brand’s scale that we believe can help maximize loyalty and digital efforts.”

Cowen has an Outperform rating on McDonald’s with a price target lifted from $255 to $266.

KeyBanc’s Post-COVID-19 McDonald’s Scenario: KeyBanc raised its 2021 and 2022 earnings per share estimates to $8.56 and $9.34, respectively, “based on strong U.S. momentum and a high potential for improved IOM trends later this year,” analyst Eric Gonzalez said in a note. 

The analyst acknowledged McDonald’s prominence in the U.S. and referred to it as a “category leader in the majority of its foreign markets, where it will likely benefit from strong pent-up demand.” He also expects strong consumer response to the company’s recently announced collaboration with the K-Pop group BTS.

Yet Gonzalez wondered about a disconnect between the brand’s popularity and its stock performance.

“Despite the 13% increase in the stock over the last three months (vs. S&P 500 +11%), MCD has underperformed its fast food rivals and remains attractive on a relative basis based on its prospects for post-pandemic share gains and EPS upside from FX tailwinds/easing mobility limitations.”

KeyBanc has an Overweight rating and upped the price target from $235 to $265.

Why Wedbush Is A McDonald’s Bull: “We believe MCD’s ongoing menu, technology, marketing, and CapEx investments render visibility into sustained annual MSD global SSS growth very high in a post-COVID global restaurant environment,” analyst Nick Setyan said in a note. 

McDonalds’ management was looking ahead with forecasts of second quarter same-store sales growth of 22%, third-quarter growth of 9% and fourth-quarter growth of 8%, with all quarters exceeding consensus predictions, the analyst said. 

This growth can be achieved through “ongoing menu innovation across all dayparts, continued growth in marketing spend, increasing digital/delivery adoption (including the rollout of a loyalty program in 2H:21), and drive-through opportunities,” he said. 

The easing of dine-in restrictions will be crucial in the company’s international operations, with post-COVID-19 growth opportunities looking bright, and perhaps even better than the company believed, Setyan said. 

Wedbush has an Outperform rating and raised the price target from $255 to $260.

Stephen’s Cautious Praise For McDonald’s: “After checking the box this quarter with a solid global comp and EPS beat, MCD is looking ahead to a robust catalyst roadmap,” analyst James Rutherford wrote. “Mobility is on the rise and consumer balance sheets are healthy. The chicken sandwich will continue to pay dividends. The BTS promotion launching late in May will likely drive sales and digital adoption. Finally, a national loyalty launch at the end of the summer will likely drive frequency and digital as well.”

Yet Rutherford explained Stephens is not ready to elevate its rating to Overweight, explaining that it would require “great confidence in 2022 EPS nicely above $10 or a multiple greater than 26x. For now, we will remain EW with a $245 target, based on 26x our $9.39 of EPS.”

Some overseas markets could prove problematic for the company’s progress, he said. 

“Heavily tourist-dependent economies like France, Germany, and Spain are still down YOY,” he wrote. “MCD has some cautious optimism that parts of Europe will begin to open their doors for travel during the summer. Recall that dining room sales are more important for IOM than for the U.S., so the frequent inability to operate dining rooms is a major headwind to sale.” Stephens maintained an Equal-Weight rating and $245 price target.

Raymond James’ Polite Praise: As with the other analysts, Brian Vaccaro pointed out strong U.S. sales and challenges in McDonald’s international markets, along with upcoming innovations with its member rewards program and the BTS promotion.

Yet his enthusiasm was milder compared to his peers.

“We are slightly raising our EPS estimates (higher sales partially offset by higher SG&A) and continue to view the stock as fairly valued at current levels (2022 P/E ~25x),” he wrote, adding the overseas markets will continue to create a drag.

“Management also indicated it expects IOM 2-year comps to improve in 2Q, but for sales levels to remain below 2019 levels until 2H21. Underlying margin and EBIT results were largely in line with our expectations (EBIT $2.15B excluding gain).”

RayJay reiterated a Market Perform rating. 

MCD Price Action: McDonald’s shares gained 0.39% Friday, closing at $236.08. 
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