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Can We Expect More Upside to McDonald’s Stock Price?

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May. 21 2019, Published 2:25 p.m. ET

Stock performance

As of May 17, McDonald’s (MCD) was trading at $199.22, which represents a rise of 1.1% since the announcement of its first-quarter earnings on April 30. Also, the company is trading close to its 52-week high of $200.63, and 30.1% higher than its 52-week low of $153.13.

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Year-to-date performance

After returning just 3.2% last year, McDonald’s stock has risen 12.2% this year as of May 17. However, the company’s returns are lagging broader equity markets with the S&P 500 Index (SPY) returning 14.1% YTD.

In the first quarter of 2019, McDonald’s posted adjusted EPS of $1.78 on revenues of $4.96 billion, outperforming analysts’ EPS estimate of $1.75 and a revenue estimate of $4.93 billion. The company posted SSSG (same-store sales growth) of 5.4% for the quarter, beating analysts’ estimate of 3.4%. Along with strong first-quarter earnings, the implementation of digital advancements to enhance customers’ experience and the acquisition of Dynamic Yield for $300 million on March 26 appears to have contributed to a rise in the company’s stock price.

Valuation multiple

The surge in McDonald’s stock price since the beginning of this year has also raised its valuation multiple. As of May 17, the company was trading at a forward PE multiple of 24.1x compared to 21.6x at the beginning of 2019. In comparison, MCD’s peers Starbuck’s (SBUX), Jack in the Box (JACK), and Wendy’s (WEN) were trading at a forward PE multiple of 26.6x, 17.1x, and 27.6x, respectively, on May 17.

Also, on the same day, McDonald’s was trading at 24.8 times analysts’ 2019 EPS estimate of $8.04 and 22.9 times analysts’ 2020 EPS estimate of $8.71 with its EPS expected to rise by 1.8% in 2019 and 0.3% in 2020.

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