McDonald’s, a global restaurant chain with over 40,000 mostly franchised stores, is set to report its fiscal first-quarter results on April 30. Analysts expect the company to outperform expectations with both revenues and earnings in Q1. Despite major currencies weakening against the U.S. dollar in FY 2023, menu price increases helped offset this challenge. The company’s cash reserves grew significantly during the pandemic, reaching $4.7 billion in 2021, allowing investments in drive-thru and delivery services, with cash reserves at $4.6 billion by the end of 2023.
In 2024, McDonald’s plans to open over 2,100 new restaurants globally, targeting almost 4% new unit growth. The company aims to reach a total of 50,000 restaurants by the end of 2027. Capital expenditures for 2024 are estimated to be between $2.5 billion and $2.7 billion, with a focus on funding restaurant expansion both domestically and internationally. The company expects net restaurant unit expansion to contribute nearly 2% to systemwide sales, with an operating margin in the mid-to-high 40% range and a free cash flow conversion rate in the 90% range by the end of 2024.
Despite strong gains in its stock price, McDonald’s has experienced fluctuations in returns over the past years, underperforming the S&P 500 in some periods. With the current uncertain economic environment, the company may face challenges in outperforming the market. However, the Trefis High Quality Portfolio has consistently outperformed the S&P 500, offering better returns with less risk. The future performance of McDonald’s stock remains uncertain, with potential impacts from high oil prices and elevated interest rates.
McDonald’s is expected to report revenues slightly ahead of consensus estimates for Q1 2024, with Trefis estimating revenues around $6.2 billion. Successful menu and marketing campaigns, along with digital and delivery growth, have contributed to strong comparable sales results. The company’s EPS is also projected to beat consensus estimates slightly, with expectations of $2.75 per share. The ongoing conflict in the Middle East may negatively impact systemwide sales, particularly in the International Developmental Licenses Markets and Corporate segment.
Based on Trefis analysis, McDonald’s valuation is forecasted at $301 per share, which is 10% higher than the current market price. The company’s EPS estimate for fiscal 2024 is around $12.46, with a P/E multiple of 24.2x. McDonald’s stock is expected to perform favorably compared to peers, with potential for growth and increased shareholder value. Investors can explore market-beating portfolios with Trefis to make informed investment decisions.
