November 11, 2023, $267.79
Business Overview:
- The world’s largest fast-food chain operates, franchises, or licenses 40,275 fast-food restaurants globally.
- Most (95%) of locations are operated by franchisees or affiliates, with the remaining managed by the company.
- Foreign operations contributed significantly to systemwide sales (59%) and consolidated operating income (45%) in 2022.
- Spun off Chipotle Mexican Grill (2006) and Boston Market (2007).
- The workforce comprises 150,000+ employees in company-owned and operated restaurants. The number of McDonald’s employees has more than halved in the past six years.
- There are 1.7 million McDonald’s workers in total, including employees of franchisees and affiliates.
Maverick Guidance:
- Short-term technical buy/sell recommendation: MODERATELY OVERBOUGHT; BUY ON WEAKNESS
- Long-term portfolio recommendation: BUY ON SHORT-TERM WEAKNESS
- Maverick Investors can anticipate steady price gains, dividends, and share buybacks from this top-quality company.
Consideration for Maverick Portfolio:
- MCD is appropriate for all risk profiles. The stock fits into all portfolios, from the Maverick CONSERVATIVE portfolio to the Maverick AGGRESSIVE GROWTH portfolio.
Market Guidance:
- Technical Analysis (based on Technical Indicators and Moving Averages):
- Investing.com = Daily: STRONG BUY Weekly: NEUTRAL
- TipRanks = Daily: NEUTRAL: Weekly: BUY
- Consensus Analyst Ratings— MarketBeat = MODERATE BUY, TipRanks = STRONG BUY
- 27 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 22 Buy, 5 Hold, and ZERO Sell. (from TipRanks)
- Based on 27 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $310.42, with a high forecast of $383.00 and a low forecast of $270.00. The average price target represents a 15.9% change from the last price of $267.79. (from TipRanks)
- Dividend Yield: $1.67 per share paid quarterly to yield 2.28%.
- Dividend growth for over 15 years. (from TipRanks)
Value Line Guidance:
- Company Financial Strength Rating: A++
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 1 of 5
- Market Timing: 3 of 5
- Technical Rank: 3 of 5
- Beta: 0.90
- Stock’s Price Stability: 100/100
- Price Growth Persistence: 95/100
- Earnings Predictability: 80/100
- Projected Average Annual PE: 25.5
- Average Annual Sales Growth in the past 5 years: +0.5%
- Average Annual Sales Growth for the next 5 years: +6.5%
- Average Annual Cash Flow Growth in the past 5 years: +7.5%
- Average Annual Cash Flow Growth for the next 5 years: +9.0%
- Average Annual Earnings Growth in the past 5 years: +8.0%
- Average Annual Earnings Growth for the next 5 years: +10.50%
- Average Annual Dividend Growth in the past 5 years: +8.0%
- Average Annual Dividend Growth next 5 years: +8.5%
- Projected Average Annual Dividend Yield in 3 to 5 years: +2.2%
Financial Performance
- 10-year Average Annual Total Return: +13.60% (through Nov 10, 2023)(8th best of the Dow 30)
- EPS
- 2020: $6.05
- 2021: $9.28
- 2022: $10.10
- 2023: e$11.75
- 2024: e$12.50 (from Value Line Quarterly Report)
- Current PE: 23.6 (FinViz)
- Forward PE: 21.5 (FinViz)
- PEG Ratio: 2.48 (FinViz)
- Beta: 0.69 (FinViz)
Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):
3Q2023 Quarterly Report (September) (Released Oct. 30)
McDonald’s 3Q2023 Earnings Report Highlights:
- Global Systemwide sales increased by +11%.
- Global comparable sales grew by nearly +9% across all segments.
- Digital Systemwide sales in the top six markets amounted to nearly $9 billion, representing over 40% of their Systemwide sales.
3Q2023 Quarter Financials:
- Global comparable sales increased by +8.8%.
- The US segment increased by +8.1%.
- The International Operated Markets segment increased by +8.3%.
- The International Developmental Licensed Markets segment increased by +10.5%.
- Consolidated revenues increased by +14%.
- Diluted earnings per share was $3.17, reflecting an 18% increase.
Key Performance Drivers:
- The US segment benefited from strong average check growth, effective marketing campaigns, and digital and delivery growth.
- Strong comparable sales in key markets like the UK, Germany, and Canada drove international Operated Markets.
- International Developmental Licensed Markets reflected strong comparable sales across all geographic regions.
Dividends and Financial Metrics:
- A 10% increase in quarterly cash dividend to $1.67 per share was declared.
- Operating income increased by +16%.
- Net income increased by +17%.
2Q2023 Quarterly Report (June)
- McDonald’s continues to focus on multiple strategies to increase revenues despite global economic challenges.
- Strong year-over-year revenue gains in the first half of 2023 across domestic, foreign, and developmental licensing markets.
- Marketing efforts, including the return of the Grimace character, contributed to positive drivers like customer traffic, pricing, store upgrades, and menu enhancements.
- Comparable-store growth eased slightly due to inflation’s impact on consumer budgets; management warned of slower growth in the second half of 2023.
- Menu improvements, especially in chicken offerings, store openings, delivery expansion, and digital mobile ordering adoption, are expected to support top-line growth.
- Estimated revenue improvement of 10% to $25.5 billion in 2023, with a gain of 6% to $27.0 billion in 2024.
- Inflation is impacting margins, particularly in Europe, but management is focused on offering value and supporting franchisee productivity via technology.
- Positive share earnings momentum, with adjusted per-share earnings expected to advance 16% in 2023 and 6%-7% in 2024.
- McDonald’s provides steady total returns, with cash flow generation and debt financing aiding international expansion and market share growth.
- Share buybacks, dividend hikes, and steady stock price appreciation reward investors.
1Q2023 Quarterly Report (March)
- Revenues are increasing as COVID-19 cases decline, especially in China, which has reopened as an important market.
- Global comparable-store sales are projected to rise in the low-double-digits in 2023, driven by volume, selective price hikes, and an enhanced menu.
- Careful expansion of store count and support for franchisees, along with digital ordering and delivery, contributing to top-line growth.
- The strong US dollar previously restrained franchise revenue growth, but the impact is expected to lessen.
- Estimated consolidated revenue increase of 5%-6% to $24.5 billion in 2023, with a further gain of 6% to $26.0 billion in 2024.
- Management-led initiatives, including international expansion, improved service and ambiance, and process standardization, helped offset elevated expenses.
- Expected share earnings growth from $10.10 in 2022 to $11.25 in 2023 and $12.00 in 2024.
- Positive share price trend, historically reliable rising total returns, solid financial strength, and limited risk profile.
- McDonald’s ranked 1 for Safety, indicating high financial strength and price stability.
4Q2022 Quarterly Report (December)
- 2022 Revenues: Dipped below the prior year due to negative foreign currency translation, a strong U.S. dollar, and cautious pricing strategies amidst rising inflation.
- 2022 Challenges: COVID-19 shutdowns in China and conservative European spending also impacted top-line performance.
- 2023 Outlook: Optimism for growth under the “Accelerating the Arches” strategy, focusing on store count expansion, operational efficiency, digital services, and delivery.
- Revenue Growth Projection: Anticipate 3%-4% growth to $24.0 billion in 2023 and a stronger 6% advance to $25.5 billion in 2024.
- Earnings Strength: Expect strengthening of earnings, displaying momentum in sales, international markets, and comparable store receipts.
- Operating Leverage: Operating efficiency efforts and strategic enhancements are expected to provide leverage against inflationary pressures.
- Profitability Factors: Wage and ingredients inflation, along with currency exchange, may restrain profitability, but service and process enhancements are seen as offsets.
- Earnings Projection: Share earnings, adjusted for special items, are forecasted to increase 5%-6% to $10.65 in 2023 and another 8%-9% to $11.55 in 2024.
- Stock Performance: McDonald’s is recognized for delivering positive total returns, steady price gains, generous dividends, and share buybacks.
The 3-to-5-year Operational and Financial Outlook:
- McDonald’s remains confident in its future and the strategic direction of its business.
- The 3-to-5-year outlook indicates continued strong growth in revenue and earnings.
- McDonald’s employs various strategies to boost revenues despite global economic challenges.
- Marketing efforts, including the return of the Grimace character, positively impacted customer traffic, pricing, store upgrades, and menu enhancements.
- Menu improvements, particularly in chicken offerings, store openings, delivery expansion, and digital mobile ordering adoption, are expected to support top-line growth.
- Despite recent market stress, McDonald’s geographical diversification positions it well to weather economic slowdowns.
- The company provides steady total returns, leveraging cash flow generation, debt financing, and international expansion for market share growth.
- The reduced share price is considered an opportunity for conservative investors with a long-term view, especially for the years 2026-2028.
Company SWOT Analysis:
- Consider whether changes in any one or more of these factors are a reason to invest or sell your investment in this company. There is no need to be guided by self-conflicted and highly biased Wall Street.
Internal Strategic Factors:
Strengths:
Brand Recognition:
- Globally recognized with its iconic golden arches logo and popular slogan, “I’m Lovin’ It.”
- Effective branding and marketing efforts create a strong, positive brand image.
Global Presence:
- Over 38,000 locations in 100+ countries, facilitating a broad customer base and economies of scale.
Strong Franchise System:
- Utilizes a successful franchise model for rapid expansion.
- A well-established franchise system ensures consistency and quality while minimizing risks and costs.
Financial Strength and Real Estate Empire:
- A multi-billion real estate empire provides a strong financial foundation.
Efficient Operations:
- Known for highly efficient operations with streamlined processes.
- Systems in place enable quick and consistent service, minimizing wait times and enhancing the customer experience.
Technological Innovation:
- Introducing new products like McCafé coffee drinks, all-day breakfast, and McCrispy Sandwiches.
- Utilizing revolutionary technology to enhance products and services.
Culinary Appeal:
- Renowned for tasty offerings, especially French fries.
- Fast foods are considered better in taste than competitors.
Strategic Acquisition for Personalized Marketing:
- Acquisition of ‘Dynamic Yield’ for personalized marketing and customizations.
- Progressing towards tailored customer experiences.
Weaknesses:
Health Concerns:
- Criticism for nutritional value and links to health issues.
- Efforts to introduce healthier options, but concerns persist.
Negative Public Perception:
- Criticism for labor practices, including low wages.
- A negative public image led to protests and calls for boycotts.
Dependence on Franchisees:
- High dependence on franchisees for revenue and growth.
- Challenges in ensuring consistency and quality across all locations.
Limited Menu Appeal:
- Perceived limitation in menu variety compared to competitors.
- The breakfast menu has lost its charm over the years due to the lack of variation.
- Reliance on signature items may impact customer preferences.
Environmental Impact:
- Criticism for environmental practices, including single-use plastics.
- Concerns were raised about the contribution to deforestation through sourcing beef and palm oil.
The Franchise business model:
- It may show a greater impact with the passing of time. The interruption in supply-chain business models can also affect the company’s growth.
Employee job dissatisfaction:
- Thousands of employees are largely dissatisfied. It may affect their efficiency and further affect the food chain’s service.
External Strategic Factors:
Opportunities:
International Expansion:
- Untapped markets in Asia and Africa present opportunities.
- Emerging demand for fast food in these regions.
Health and Wellness Trends:
- Opportunity to introduce healthier menu options.
- Leverage the supply chain for sustainable and environmentally friendly choices.
Digital Technology:
- Heavy investment in digital tech, including mobile ordering.
- Potential for further innovation and data leverage for menu and marketing enhancement.
Delivery and Convenience:
- Expand delivery offerings through third-party services.
- Explore partnerships with popular delivery platforms.
Partnership and Collaborations:
- Collaborate with other brands or chefs for innovative menu offerings.
- Differentiate the company and appeal to new customer segments.
Affordable Menu Strategies:
- The launch of the “$1, $2, $3” menu and the “2 for $5 Mix and match deal” attracts budget-conscious customers.
Asian Market Expansion:
- Opportunity for further expansion in Asian countries by tailoring menus to local preferences.
Brand Image Rebuilding:
- Work on rebuilding the brand image to counteract negative publicity.
- Focus on employee satisfaction.
Delivery Partnership:
- Initiated a partnership with UberEats to serve customers unable to visit a location.
Threats:
Environmental, Regulatory, and Legal Challenges:
- Faces challenges related to labor, food safety, and environmental regulations.
- There is immense pressure to improve practices to minimize waste production, creating a negative impression.
- Regulatory changes or legal issues can affect operations and profitability.
Risky Technological Investments:
- McDonald’s risky investments in technological initiatives may severely affect future growth.
Resistance to Change:
- Being considered old-school may impact the business, especially in adapting to changing food habits.
- Cultural threats while operating in different countries.
Competition:
- Intense competition in the fast-food industry.
- Competitors from various chains and emerging trends like healthier options.
Changing Consumer Preferences:
- Risk of the menu becoming less appealing.
- Adaptation to health and environmental trends is crucial.
Economic Factors:
- Impact from inflation, consumer spending changes, and currency fluctuations.
- Economic downturns in key markets pose risks.
Supply Chain Disruptions:
- Dependency on a complex supply chain.
- Disruptions like natural disasters can impact ingredient availability and costs.
- There is immense pressure to improve practices to minimize waste production, creating a negative impression.
FinViz Snapshot: https://finviz.com/screener.ashx?v=341&t=MCD
10-Year Historical Price Chart: (from StockCharts.com)
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=MCD,PWTAWANRNO[PA][D][F1!3!!!2!20]
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