McDonald’s (NYSE:MCD) performed remarkably well in 2022, with a total return of +0.42% as compared with -8.4% for the restaurant industry as a whole and -18.2% for the S&P 500 (SPY). The shares have held up due to evidence that the company is weathering the high-inflation environment successfully. In the Q3 earnings results, the company reported that same store sales had climbed 9.5% on a global basis, far above the expected result. The results show that McDonald’s demand had held up even as the company has raised prices in response to inflation. Even though McDonald’s has raised prices by about 10% YoY, the restaurant is still a low-cost provider and probably benefits from customers trading down from more expensive options.
12-Month price history and basic statistics for MCD (Source: Seeking Alpha)
Some of the share performance in 2022 is due to MCD’s broad attributes rather than the specifics of how the company has fared. A Fama-French 3-factor regression shows that the beta (the market factor) is 0.66, so the shares would be expected to drop (or rise) ⅔ as much as the market as a whole over any given period. In addition, MCD has a small positive factor for value (albeit not statistically significant). Value dramatically outperformed growth in 2022, with the iShares S&P 500 Value ETF (IVE) returning a total of -5.4% vs. -29.5% for the iShares S&P 500 Growth ETF (IVW).
Fama-French 3-factor regression results for MCD for the 5-year period through November 2022 (Source: Portfolio Visualizer)
Rising interest rates disproportionately reduce the net present value (NPV) of expected earnings from growth stocks vs. value stocks because more of the NPV of growth stocks is due to earnings that will occur further into the future. Additional interest rate increases, or even a prolonged period of rates at the current level, will tend to be a tailwind for MCD.
After suffering a significant drop in 2020 during the pandemic surge, MCD earnings have rebounded. The company has beaten EPS expectations for the past 3 quarters. The most-recent miss, Q4 of 2021, was by a small amount. The consensus outlook for EPS growth over the next 3 to 5 years is 7.5% per year.
Trailing (3 years) and estimated future quarterly EPS for MCD. Green (red) values are amounts by which EPS beat (missed) the consensus expected value (Source: ETrade)
With a forward P/E of 26.5 and the modest expected earnings growth, MCD looks fairly expensive compared to historical values. The P/E has been in a long-term upward trend over the past decade.
I last wrote about MCD 6 months ago, on June 28, 2022, at which time I maintained a buy rating on the shares. At that time, the TTM P/E was 26.2. The Wall Street consensus rating was a buy and the consensus 12-month price target was about 13% above the share price at that time, for an expected total return of 15.3%. The market-implied outlook, a probabilistic price forecast that represents the consensus view from the options market, was substantially bullish to the end of 2022 and to the middle of 2023, with expected volatility of 24% to 25%. As a rule of thumb for a buy rating, I want to see an expected 12-month total return that is at least ½ the expected annualized volatility. Taking the Wall Street consensus price target at face value, MCD met this criterion (15.3% total return vs. 25% volatility). While the valuation was a concern, the bullish Wall Street consensus buy rating, the consensus price target, and the bullish market-implied outlook all supported an overall buy rating for MCD. From closing price on June 28, 2022 through the end of 2022, MCD returned a total of 9.7%, as compared to 1.3% for the S&P 500 (SPY).
For readers who are unfamiliar with the market-implied outlook, a brief explanation is needed. The price of an option on a stock reflects the market’s consensus estimate of the probability that the stock price will rise above (call option) or fall below (put option) a specific level (the option strike price) between now and when the option expires. By analyzing the prices of call and put options at a range of strike prices, all with the same expiration date, it is possible to calculate the probable price forecast that reconciles the options prices. This is the market-implied outlook. For a deeper discussion than is provided here and in the previous link, I recommend this outstanding monograph published by the CFA Institute.
I have calculated updated market-implied outlooks for MCD and compared these with the current Wall Street consensus outlook in revisiting my rating.
Wall Street Consensus Price Target for MCD
ETrade calculates the Wall Street consensus outlook for MCD using the views of 20 ranked analysts who have published ratings and price targets in the past 3 months. The consensus rating is a buy, as it has been for all of the past year. The consensus 12-month price target is 8.4% above the current share price, for an expected total return of 10.7% over the next year. The consensus 12-month price target at the time of my previous analysis was $279.33.
Wall Street analyst consensus rating and 12-month price target for MCD (Source: ETrade)
Seeking Alpha’s version of the Wall Street consensus outlook is calculated using the views of 37 analysts who have published ratings and price targets over the last 90 days. The consensus rating is a buy and the consensus 12-month price target is 9.9% above the current share price, which implies an expected total return of 12.2%.
Wall Street analyst consensus rating and 12-month price target for MCD (Source: Seeking Alpha)
These 2 calculations of the Wall Street consensus both continue to have a buy rating for MCD. Averaging the consensus price targets, the expected total return is 11.5%, slightly less than the trailing 15-year annualized total return, 11.9% per year.
Market-Implied Outlook for MCD
I have calculated the market-implied outlook for MCD for the 5.4-month period from now until June 16, 2023 and for the 12.5-month period from now until January 19, 2023, using the prices of call and put options that expire on these dates. I selected these two expiration dates to provide a view to the middle of 2023 and through the entire year.
The standard presentation of the market-implied outlook is a probability distribution of price return, with probability on the vertical axis and return on the horizontal.
Market-implied price return probabilities for MCD for the 5.4-month period from now until June 16, 2023 (Source: Author’s calculations using options quotes from ETrade)
The outlook to June 16th has a flattened peak, indicating that there are a range of outcomes that are expected to occur with comparable probability. The distribution is shifted to the right of zero return, indicating elevated probabilities of positive returns. Compare, for example, the probability of having a +10% return with the probability of a -10% return. The expected volatility calculated from this distribution is 23.2% (annualized), slightly lower than the expected volatility calculated in my June 28th post.
To make it easier to compare the relative probabilities of positive and negative returns, I rotate the negative return side of the distribution about the vertical axis (see chart below).
Market-implied price return probabilities for MCD for the 5.4-month period from now until June 16, 2023. The negative return side of the distribution has been rotated about the vertical axis (Source: Author’s calculations using options quotes from ETrade)
This view shows that the probabilities of positive returns are consistently above the probabilities of negative returns of the same magnitude, across almost the entire range of possible outcomes (the solid blue line is above the dashed red line over almost all of the chart above). These results suggest a bullish view to the middle of 2023.
Theory indicates that the market-implied outlook is expected to have a negative bias because investors, in aggregate, are risk-averse and thus tend to pay more than fair value for downside protection. There is no way to measure the magnitude of this bias, or whether it is even present, however. The expectation of a negative bias reinforces the interpretation of this outlook as bullish.
The market-implied outlook for the next 12.5 months is also bullish, with consistently asymmetric probabilities favoring positive returns. The expected volatility calculated from this distribution is 23.0%.
Market-implied price return probabilities for MCD for the 12.5-month period from now until January 19, 2024. The negative return side of the distribution has been rotated about the vertical axis (Source: Author’s calculations using options quotes from ETrade)
Considering the very challenging market conditions, McDonald’s has had a very successful year. The results add confidence in management and the commitment to consistent execution of the growth strategy. The low beta and slight value orientation should continue to be positive for the shares in an environment with continuing high interest rates and/or further market declines. That said, the shares have become somewhat expensive. The Wall Street consensus rating continues to be a buy and the consensus 12-month price target corresponds to a total return of 11.5% over the next year. The market-implied outlook for MCD is bullish to the middle of 2023 and into the start of 2024, with expected volatility of 23%. Taking the Wall Street consensus price target at face value, the expected return is right on ½ the expected volatility, indicating a reasonable risk-return balance. While the valuation is a concern, the positive momentum (Seeking Alpha momentum grade of A-) and the bullish outlooks from the Wall Street analysts and the options market convince me to maintain a buy rating.
This article was written by
Geoff has worked in quantitative finance for more than twenty years.Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech.Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.
Disclosure: I/we have a beneficial long position in the shares of MCD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Stock Price Forecast
The 30 analysts offering 12-month price forecasts for McDonald's Corp have a median target of 295.00, with a high estimate of 328.00 and a low estimate of 262.00. The median estimate represents a +11.87% increase from the last price of 263.70.
MCD Still a Long-Term Play
While it's long past peak perception, the profit and sales growth and rock-solid dividend continue to make MCD stock a good long-term investment for growth investors and income investors alike.
McDonald's is an established company and part of the Dividend Aristocrats club. Dividend Aristocrats are companies that consistently pay out higher dividends to investors year over year, for at least 25 consecutive years.Is it good to invest in McDonald's stock? ›
McDonald's is highly likely to keep gaining market share in a huge global industry while generating profits that its smaller peers can only dream about. Consider adding this stock to your portfolio or your watch list for 2023.What is the highest McDonald's stock has ever been? ›
- The all-time high McDonald's stock closing price was 275.27 on November 08, 2022.
- The McDonald's 52-week high stock price is 281.67, which is 7.2% above the current share price.
- The McDonald's 52-week low stock price is 217.68, which is 17.1% below the current share price.
Steady Dividend Growth
Dividend growth can continue as MCD increases cash flow going forward. The company brought in over $8 billion in operating cash flow and had $5.4 billion in levered free cash flow over the past 12 months. Free cash flow per share is expected to grow at about 17% annually in 2022 and 2023.
|Symbol||Last Price||% Chg|
There might not be enough upside for investors to jump in, but over the long-term MCD is a safe haven few investors have not benefited from. I focus on long term growth and dividend growth investing.Does Bill Gates own shares in McDonalds? ›
Bill Gates added to his holdings in McDonald's Corporation by 10.13%.
While the company is a huge player in the fast-food market, its biggest revenue source is renting its locations to franchisees. As a result, we can think of McDonald's as a real estate empire, more than a fast-food chain. This model provides McDonald's with a steady revenue stream from rent and royalties on food sales.What is McDonalds the largest purchaser of? ›
McDonald's is the nation's largest purchaser of beef, pork, and potatoes. It is the second-largest purchaser of chicken. McDonald's serves about 9 million pounds of fries globally—per day. McDonald's Corporation is the largest owner of retail property in the world.What makes McDonald's so successful? ›
McDonald's success today is largely attributed to its franchising model, consistency, and innovation. Through their franchising model, they were able to enjoy rapid growth.How financially strong is McDonald's doing? ›
McDonald's annual gross profit for 2022 was $13.207B, a 4.98% increase from 2021.How did McDonald's overcome the challenges? ›
McDonalds found the solution to most of its problems;they went Local. They promised that there would be no beef or pork on the menu. Nearly half of Indians are vegetarian so choosing a vegetarian to run their outlets here makes sense.Is it profitable to own a McDonalds? ›
Is owning a McDonald's franchise profitable? The average annual sales in 2021 from over 12,000 US-based locations that were open at least a year was over $3 million. While there is no guarantee that a McDonald's franchisee will be successful, the brand has a strong track record of profitability.Is McDonalds worth the money? ›
McDonald's Net Worth.
|What Is McDonald's Worth?|
|Share Price, 52-Week Range||$217.68-$271.15|
|Fiscal Year 2021 Revenue||$23.22 billion|
|Fiscal Year 2021 Profit||$7.55 billion|
|GOBankingRates' Evaluation of McDonald's Net Worth||$36.53 billion|
McDonald's has received a consensus rating of Buy. The company's average rating score is 2.77, and is based on 20 buy ratings, 6 hold ratings, and no sell ratings.Does McDonald's stock ever split? ›
Since going public in 1965, McDonald's has executed 12 stock splits.
The next McDonald's Corp dividend will go ex in 2 days for 152c and will be paid in 17 days. The previous McDonald's Corp dividend was 152c and it went ex 3 months ago and it was paid 2 months ago. There are typically 4 dividends per year (excluding specials), and the dividend cover is approximately 1.7.
- Berkshire Hathaway. This US-based multinational conglomerate holding company has the costliest share in the world, standing at $4,72,712.00 on 29th Nov, 2022.
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|3.||Easy Trip Plann.||50.20|
|4.||Share India Sec.||1046.60|
McDonald's total long-term assets for the quarter ending December 31, 2022 were $42.761B, a 6.9% decline year-over-year. McDonald's total long-term assets for 2021 were $46.706B, a 0.69% increase from 2020. McDonald's total long-term assets for 2020 were $46.384B, a 5.53% increase from 2019.What is McDonald's stock price target? ›
Average Price Target
Based on 24 Wall Street analysts offering 12 month price targets for McDonald's in the last 3 months. The average price target is $294.17 with a high forecast of $328.00 and a low forecast of $262.00. The average price target represents a 9.54% change from the last price of $268.55.
Ratings - MCD
46 years of consecutive dividend increase. 2.31% forward dividend yield. Top 50%.
The company STILL has NEGATIVE shareholders' equity (-$5.7bn in 2021). That's because the company has MASSIVE amounts of DEBT and continues to borrow heavily. In fact, while revenues and equity continuously declined between 2014 and 2019, borrowing kept going up and up. End of 2014, long term debt sat at $14bn.What are McDonalds biggest threat? ›
- Aggressive competition with other fast-food firms.
- Healthy lifestyle trends.
- Food supply disruptions.
- The Procter & Gamble Company (NYSE:PG)
- PepsiCo, Inc. (NASDAQ:PEP)
- Eli Lilly and Company (NYSE:LLY)
- Pfizer Inc. (NYSE:PFE)
- AbbVie Inc. (NYSE:ABBV)
- Merck & Co., Inc. (NYSE:MRK)
- Johnson & Johnson (NYSE:JNJ)
100 Circle Farms: A McDonald's Potato Supplier | McDonald's.
The company's largest shareholder is The Vanguard Group, Inc., with ownership of 9.2%. With 6.8% and 4.7% of the shares outstanding respectively, BlackRock, Inc. and State Street Global Advisors, Inc. are the second and third largest shareholders.Does Bill Gates own Walmart? ›
Bill Gates Walmart Inc
Bill Gates's position in Walmart is currently worth $429 Million. That's 1.17% of their equity portfolio (9th largest holding). The first Walmart trade was made in Q2 2006. Since then Bill Gates bought shares eight more times and sold shares on five occasions.
Ever since the first McDonald's menu from when the chained opened in the 1950s, french fries have been a star. The famous Golden Arches sell upward of 9 million pounds of fries per day!How much do McDonalds owners get paid? ›
Average McDonald's Owner yearly pay in the United States is approximately $98,089, which is 43% above the national average.How much money does the CEO of McDonalds make a year? ›
|CEO Name||CEO Pay||Median Employee Pay|
|Christopher Kempczinski||CEO Pay $10,847,032||Median Employee Pay $9,124|
Privately-owned Burger King is McDonald's closest competitor. Yum Brands operates Taco Bell, KFC, and Pizza Hut.Where does McDonald's rank in the world? ›
Billionaire investor Carl Icahn takes on McDonald's over pig welfare.What is the best strategy that McDonald's have currently? ›
Market penetration is the main intensive growth strategy that supports McDonald's business development. The company's strategic objective in using market penetration is to generate more sales in food service markets where the business currently has operations.What is McDonald's trying to achieve? ›
Here at McDonald's, our purpose is to feed and foster communities. As the leading global foodservice retailer, we believe it's our responsibility to make our impact on this world a positive one.
More specifically, McDonald's provides management training, encourages entrepreneurship, creates backward linkages that develop the capabilities of suppliers, promotes exports, and generates positive externalities in the form of productivity levels and service standards in the countries in which it operates.Why is McDonald's important to the economy? ›
Mcdonald's helped out our nation's economy greatly. It opened up millions of job opportunities for the public. Mcdonald's also uses teenagers for part time help, which opened up a larger variety of people who were allowed to work causing even more jobs to open.How much money is McDonald's losing? ›
McDonald's net income/loss for the quarter ending December 31, 2022 was $4.274B, a 27.64% decline year-over-year. McDonald's net income/loss for the twelve months ending December 31, 2022 was $15.216B, a 4.49% decline year-over-year.How has McDonalds achieved competitive advantage? ›
Cheat prices is McDonald's main competitive advantage. The company is engaged in an extensive utilization of economies of scale to achieve the cost advantage. True to 'fast food' format of its restaurants, McDonald's is famous for the speed of customer service without compromising the quality of the service.What is McDonalds main problem? ›
PROMOTING UNHEALTHY FOOD
McDonald's promote their food as 'nutritious', but the reality is that it is processed junk food - high in fat, sugar and salt, and low in fibre and vitamins. A diet of this type is linked with a greater risk of heart disease, cancer, diabetes and other diseases.
Despite the euphoria, McDonald's faces growing difficulties as rising costs and falling market share have led to franchisee cash flow issues. Consumer satisfaction and employee turnover trends suggest that McDonald's efforts to automate and mechanize its operations harm its brand value.What is the price target for McDonalds share? ›
Stock price target for McDonald's Corporation MCD are 261.36 on downside and 263.76 on upside.Is McDonalds stock overpriced? ›
|Symbol||Last Price||% Chg|
McDonald's annual gross profit for 2022 was $13.207B, a 4.98% increase from 2021.Is McDonalds a good dividend stock? ›
MCD pays a dividend of $1.52 per share. MCD's annual dividend yield is 2.11%. When is McDonald's ex-dividend date? McDonald's's previous ex-dividend date was on Nov 29, 2022.
The McDonald's target audience is mainly lower to middle class consumers, who are interested in fast, cheap and convenient food. During the pandemic, the famous McDonald's drive-thru became even more popular. In 2020, the average drive-thru purchase took 349 seconds.Who are the biggest investors in Mcdonalds? ›
|Vanguard Group, Inc. (The)||67,570,353||Sep 29, 2022|
|Blackrock Inc.||49,901,559||Sep 29, 2022|
|State Street Corporation||34,704,308||Sep 29, 2022|
|JP Morgan Chase & Company||18,722,427||Sep 29, 2022|
|MCD Split History Table|
|06/27/1994||2 for 1|
|03/08/1999||2 for 1|
The company STILL has NEGATIVE shareholders' equity (-$5.7bn in 2021). That's because the company has MASSIVE amounts of DEBT and continues to borrow heavily. In fact, while revenues and equity continuously declined between 2014 and 2019, borrowing kept going up and up. End of 2014, long term debt sat at $14bn.