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How Analysts Reacted to McDonald’s Q2 Earnings

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McDonald’s (MCD) posted its second-quarter results on Friday. During the quarter, the company’s adjusted EPS were in line with analysts’ estimate, while its revenue of $5.34 billion was marginally higher than their estimate. The company’s SSSG (same-store sales growth) of  6.5% beat analysts’ estimate of 5.1%, boosted by its promotional offerings, “Experience of the Future” deployment, and core menu items’ strong performance. McDonald’s initiatives and impressive SSSG in the second quarter appear to have prompted analysts to raise their price targets—after its earnings release, the following adjustments were made:

  • Jefferies raised its price target from $230 to $245.
  • Guggenheim raised it from $215 to $230.
  • Stifel increased it from $200 to $210.

Most (78.1%) of the 32 analysts covering McDonald’s recommend “buy.” The rest recommend “hold.” The company’s stock price has risen over 21% this year, and analysts expect it to rise further. Their average 12-month price target of $225.46 for MCD implies a 4.6% upside from its current stock price of $215.58.

McDonald’s stock performance

On Friday, McDonald’s stock rose to a high of $218.96 before closing the day at $215.58, 0.5% higher than its previous day’s closing price. Year-to-date, the company has returned 21.4%, outperforming broader equity markets—the S&P 500 has risen 20.7%. In comparison, MCD peers Starbucks and Dunkin’ Brands have returned 53.9% and 28.8%, respectively.

Comparing its valuation

The surge of 21.4% in McDonald’s stock price has also increased its valuation multiple. Since the beginning of this year, its forward PE multiple has risen to 25.6x (as of Saturday) from 21.6x. However, that multiple is still lower than Starbucks’s and Dunkin’ Brands’ forward PE multiples of 32.4x and 26.4x, respectively.

Also, on Friday, McDonald’s was trading at 26.9 times analysts’ 2019 EPS estimate of $8.03, and 24.7 times their 2020 EPS estimate of $8.71. Analysts project McDonald’s EPS to rise by 1.6% this year, and 8.5% in 2020.

Starbucks reported its third-quarter results on Thursday. To learn more, read Starbucks Stock Rose After Impressive Q3 Earnings.

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