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McDonald's: Investors Are Optimistic before Its 2Q17 Earnings

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Part 4
McDonald's: Investors Are Optimistic before Its 2Q17 Earnings PART 4 OF 6

Will McDonald’s Earnings Outperform Analysts’ Estimates?

2Q17 earnings estimate

Analysts expect McDonald’s (MCD) to post EPS (earnings per share) of $1.62 in 2Q17—growth of 11.7% from $1.45 in 2Q16. The EPS growth is expected to be driven by the expansion of EBIT margins and share repurchases.

Will McDonald&#8217;s Earnings Outperform Analysts’ Estimates?

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From the beginning of 3Q16 to the end of 1Q17, the company repurchased 41.6 million shares for $4.80 billion. Share repurchases boost the company’s earnings by lowering the number of shares outstanding. Some of the EPS growth is expected to be offset by the decline in revenue and strengthening US dollar against other currencies. McDonald’s management expects the currency exchange to lower its 2Q17 by $0.02 to $0.04 and reduce its 2017 EPS by $0.05 to $0.07.

From the above graph, you can see that McDonald’s outperformed analysts’ estimates in all five quarters. When this happens, the stock price tends to rise.

Peer comparisons and outlook

In 2Q17, analysts expect Jack in the Box (JACK), Wendy’s (WEN), and Restaurant Brands International (QSR) to post EPS growth of 0.4%, 10.5%, and 30.7%, respectively.

For the next four quarters, analysts expect McDonald’s to post EPS of $6.48, which represents growth of 8.5% from $5.97 in the same quarters the previous year.

Dividends

In 1Q17, McDonald’s paid dividends of $0.94 per share at a dividend yield of 2.4% and a payout ratio of 58.8%. During 2Q17 and 3Q17, analysts expect the company to continue paying dividends of $0.94. In 4Q17, analysts expect the dividends to rise to $0.99. For 2017, the company is expected to pay dividends of $3.81, which represents growth of 5.5% year-over-year.

In the next part, we’ll look at McDonald’s valuation multiple.

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