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McDonald’s Shares Rise 3% as Earnings and Revenue Tops Views; Buy with Target Price $269

By:
Vivek Kumar
Published: Oct 27, 2021, 13:48 UTC

“We note a +0.79 correlation between McDonald's (MCD) FY1 EV/EBITDA and U.S. comps pre-COVID-19, which we expect will lead to a positive stock reaction given the 3Q U.S. comp beat. Along with better-than-expected international sales, we were pleased with the flow-thru that led to a 3QEPS beat. We also like the raised 2021 system sales outlook primarily on higher same-store sales,” noted Andrew Charles, equity analyst at Cowen.

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McDonald’s shares jumped 3% in pre-market trading on Wednesday after the largest restaurant chain reported better-than-expected earnings and revenue in the third quarter, driven by menu price increases, new menu items and bigger orders.

The leading global foodservice retailer said its net income climbed 22% to $2.15 billion and the company reported earnings per share of $2.76 per share, beating the Wall Street consensus estimates of $2.46 per share.

The largest restaurant chain in the world by sales and the leading burger fast-food chain also said its total revenue jumped 14% to $6.20 billion, above the market consensus of $6.03 billion. The company said its global comparable sales were up 12.7% in the third quarter and increased 10.2% on a 2-year basis.

McDonald’s also declared a 7% increase in its quarterly cash dividend to $1.38 per share and also announced the resumption of its share repurchase program.

At the time of writing, McDonald’s stock was trading 1.57% higher at $240.06.

Analyst Comments

“We note a +0.79 correlation between McDonald’s (MCD) FY1 EV/EBITDA and U.S. comps pre-COVID-19, which we expect will lead to a positive stock reaction given the 3Q U.S. comp beat. Along with better-than-expected international sales, we were pleased with the flow-thru that led to a 3QEPS beat. We also like the raised 2021 system sales outlook primarily on higher same-store sales,” noted Andrew Charles, equity analyst at Cowen.

McDonald’s provided a detailed outlook and raised the expected 2021 systemwide sales growth (ex-FX) to high teens vs. mid-to-high teens previously, with the lift primarily driven by same-store sales as net restaurant growth is still expected to contribute 1% to growth. 2021 guidance for 2.4% SG&A as a percent of systemwide sales, low-to-mid 40% operating margins, $2.3B CapEx, 90%+ FCF conversion and interest expense down 1-3% vs 2020 were all reiterated.”

McDonald’s Stock Price Forecast

Twenty-two analysts who offered stock ratings for McDonald’s in the last three months forecast the average price in 12 months of $269.00 with a high forecast of $306.00 and a low forecast of $232.00.

The average price target represents a 13.78% change from the last price of $236.42. From those 22 analysts, 19 rated “Buy”, three rated “Hold”, while none rate “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $266 with a high of $319 under a bull scenario and $184 under the worst-case scenario. The firm gave an “Overweight” rating on the restaurant chain’s stock.

“Best-in-class asset quality, scale in advertising, other areas = structural advantages. Experience of Future (EOTF) reimages enable digital and delivery sales, the key to the new strategic plan. ROIC rising 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.”

Several other analysts have also updated their stock outlook. Deutsche Bank raised the target price to $265 from $264. Citigroup lifted the price target to $260 from $250. UBS upped the target price to $270 from $260.

Check out FX Empire’s earnings calendar

About the Author

Vivek has over five years of experience in working for the financial market as a strategist and economist.

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