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Can Investors Expect Momentum from McDonald’s 3Q16 Earnings?

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McDonald’s stock performance

The Illinois-based hamburger giant McDonald’s (MCD) is scheduled to announce its 3Q16 results before the market opens on October 21, 2016.

In 2Q16, the company posted adjusted EPS (earnings per share) of $1.45 compared to analysts’ estimate of $1.39. Despite better-than-expected 2Q16 earnings, McDonald’s share price fell due to lower-than-expected same-store sales growth (or SSSG), which was 3.1% against analysts’ estimate of 3.6%. In the United States, SSSG was 1.8% against analysts’ estimate of 4.1%.

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The widening gap between the cost of eating at home and dining out led to lower-than-expected SSSG, which made investors skeptical about McDonald’s future earnings, which led to the fall in MCD stock. As of October 13, 2016, McDonald’s was trading at $115.40, a fall of 9.4% from $121.70 on July 25, 2016, just before its 2Q16 earnings.

Year-to-date performance

In 2015, McDonald’s stock delivered an impressive rise of 26.7%. However, on a year-to-date basis, it fell 1.8%. During the same period, peers Jack in the Box (JACK), Wendy’s (WEN), and Restaurant Brands International (QSR) have risen 26.6%, 1.1%, and 22.5%, respectively.

Since the beginning of 2016, the Consumer Discretionary Select Sector SPDR ETF (XLY), the broader comparative index, has risen 2.8%. XLY has invested more than 10.0% of its holdings in restaurant companies such as McDonald’s (MCD), Starbucks (SBUX), and Yum! Brands (YUM).

Series overview

This pre-earnings series will explore what we can expect from McDonald’s 3Q16 earnings release. The series covers analysts’ estimates for revenue, EBIT (earnings before interest and tax) margins, and earnings per share. To wrap up this series, we’ll look at the company’s valuation multiple and the expected stock price over the next 12 months.

Let’s start by looking at McDonald’s estimated revenue for 3Q16.

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