While the menu price increase mitigated this significant headwind in Q1, we anticipate that it may have an impact on earnings in Q2. In response to price increases, the company observed that some customers were reducing their orders, with french fries being a common victim.
However, continued customer opposition to the price increases could result in revenue declines. Additionally, margins in 2023 may be affected by commodity, utility, and labor price inflation.
Our projections indicate that McDonald’s value per share is $266, which is nearly 10% less than the current market price. For more information, consult our interactive dashboard analysis on McDonald’s Earnings Outlook: What to Expect in Fiscal Q2
1. Revenues are anticipated to be marginally below consensus forecasts.
Trefis forecasts McDonald’s Q2 2023 revenues to be approximately $6.2 billion, which is slightly below the average estimate. The company’s revenue for the first quarter of 2023 increased by 4% year-over-year to $5.9 billion.
It is important to note that the company’s Q1 comparable sales grew by nearly 13% globally and in each segment due to price increases and marketing promotions. Strong comparable sales results were the result of successful menu and marketing campaigns, as well as sustained digital and delivery growth.
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Since its relaunch in 2021, McDonald’s has been able to withstand the economic storm in part by maintaining its customer loyalty program, MyMcDonald’s Rewards. As of March 31, the company’s rewards program had nearly 50 million 90-day active members in its top six markets.
During the pandemic, the company amassed cash reserves in preparation for recessions, increasing its cash on hand from $898 million in 2019 to $4.7 billion in 2021.
The company invested the majority of its cash in drive-thru and delivery services as of April 2023, but it still has a substantial amount of cash on hand, totaling $3.7 billion. We expect McDonald’s Revenues to increase by 6% year-over-year to $24.6 billion in fiscal year 2023.
2. Earnings per share are likely to miss consensus estimates by a small margin.
Trefis predicts that McDonald’s second-quarter 2023 earnings per share will be $2.76, which is marginally below the consensus estimate. MCD’s Q1 earnings per share increased 15% year-over-year to $2.63. McDonald’s disciplined cost management contributed to relatively constant total operating expenses for the quarter.
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In addition, a reduction in the number of outstanding shares as a result of share repurchases explains why the company’s profits grew much quicker than its revenues.
3. The estimated stock price is less than the prevailing market price.
In accordance with our McDonald’s Valuation, an EPS estimate of approximately $10.60 and a P/E multiple of 25.1x in fiscal year 2023 result in a price of $266, which is almost 10% less than the current market price.
It is useful to compare a subject to its counterparts. MCD Peers demonstrates how McDonald’s stock compares to its competitors on relevant metrics. Peer Comparisons contain additional comparisons of corporations across industries.
What if you want a portfolio that focuses on long-term growth? Since 2016, this value portfolio has performed significantly better than the market.
