McDonald’s Q2 Global Sales Slump Nearly 24% as COVID-19 Pandemic Bites; Target Price $209

McDonald’s Corp, one of the world’s largest American fast-food chain, reported that its global sales plunged about 24% in the second quarter as restaurants were closed due to the COVID-19 pandemic, sending its shares down about 2% pre-market.

So far, the deadly virus has infected more than 16.57 million people in 210 countries and killed over 650 thousand, wherein the United States is the worst hit, leading the global foodservice retailer to halt reopening of its U.S. restaurants for 21 days early this month.

The leading global foodservice retailer, McDonald’s has over 36000 restaurants in more than 100 countries around the world, said its second-quarter same-store sales worldwide plunged about 24% and declined nearly 9% in the United States, where it operates more than a third of its restaurants.

The company’s revenue fell 30.5% to $3.76 billion, net income fell 68% to $483.8 million. McDonald’s said about Substantially all restaurants were operating drive-thru, delivery, and/or take-away with a limited menu.

Just after the announcement, McDonald’s shares dipped about 2% to $198.50.

Executive comment

“Our strong drive-thru presence and the investments we’ve made in delivery and digital over the past few years have served us well through these uncertain times,” said chief executive officer Chris Kempczinski said.

“We saw continued improvement in our results throughout the second quarter as markets reopened around the world. We’re confident that the strong foundation we’ve built, combined with the unique advantages of our System, position us well to continue operating successfully during this pandemic and emerge even stronger.”

McDonald’s stock forecast

Twenty-four analysts forecast the average price in 12 months at $209.09 with a high forecast of $230.00 and a low forecast of $178.00. The average price target represents a 3.90% increase from the last price of $201.25. From those 24, 20 analysts rated ‘Buy’, four analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $207 with a high of $255 under a bull scenario and $143 under the worst-case scenario. Evercore ISI raised its target price to $210 from $200; Keybanc raised the price target to $215 from $200 while Independent Research lowered its target price to $190 from $195; rated ‘Hold’.

Several other equity researches have also recently upgraded their stock outlook. BMO raised the target price to $220 from $215, Suntrust Robinson raised the target price to $208 from $195, Jefferies raised it to $220 from $208. Cowen and Company raised it to $210 from $208, Piper Sandler raised the target price to $190 from $170 and Stifel raised it to $182 from $175.

Analyst comment

“Best-in-class asset quality, scale in advertising, other areas = structural advantages. Experience of Future (EOTF) reimages enable digital and delivery sales. MCD spends materially more on reimaging than average peers. ROIC rising, capex to fall, and FCF and return of capital to accelerate post ’19, after accounting for COVID-19 disruption,” noted John Glass, equity analyst at Morgan Stanley.

“Refranchising to 95% mostly complete, with operating margins in the mid-40% range, improved FCF and lower earnings volatility. Defensive stock, both in terms of fundamentals and low stock price volatility; better positioned for uncertain demand environment,” he added.