McDonald's May Be Perfectly Positioned Ahead of Earnings Season

McDonald’s Corp. (NYSE: MCD) is the king of dining away from the home. It no longer matters whether it is called fast food or fast casual, because with a $167 billion market cap it has no rivals anywhere close to its valuation. To put that valuation in perspective, McDonald’s is worth the same as Starbucks, Chipotle Mexican Grill and Yum! Brands combined.

Investors are looking for solid companies that can deliver on earnings and still offer safety in the current environment. Wall Street has been increasing its targets and expectations for McDonald’s ahead of earnings season.

The more recent upbeat commentary is on the heels of same-store sales holding up better than expected, market share growth opportunities and even a rare dividend hike in the current climate.

McDonald’s recently reported that U.S. comparable store sales rose 4.6% in the third quarter. Overall, comparable sales were down because of international weakness, which Wall Street currently is discounting to the mess around the higher coronavirus cases globally.

With earnings season coming up, and with investors still looking for defensive stocks that can recover and grow earnings during the ongoing pandemic, McDonald’s may be in the perfect position for those investors wanting safety and income at a time when millions of Americans are still unable to find a job.

McDonald’s has seen increased interest since announcing a celebrity partnership with the rapper Travis Scott, and the fast-food giant also has a new collaboration with reggaeton artist J Balvin. The company has expanded its breakfast menu with the McCafe bakery lineup too.

While McDonald’s stock price has risen above its consensus analyst price target, firms have been raising their targets and increasing expectations. Remember that no single analyst call should ever be used as the sole basis for buying or selling a stock. What are investors supposed to think when they see multiple analysts increasing expectations?

Jefferies reiterated its Buy rating on October 9 and raised its target to $265 from $220 in the wake of better than expected same-store sales. At the same time, the firm BTIG boosted its price target to $245 from $220.

Truist Securities reiterated its Buy rating and raised its target to $246 from $212, based on its stronger than expected same-store sales. Those sales were down 2.2%, but that was still better than expected, and many of the stores have not even been open for anything other than drive-thru operations for much of the COVID-19 lockdown. Truist believes that McDonald’s is now in a strong position, in the current environment and long term, to gain market share. The firm also cited its dividend hike.

On October 5, BofA Securities reiterated its Buy rating and raised its price objective to $250 from $220.

According to Credit Suisse, some McDonald’s restaurants are facing supply shortages due to overwhelming demand for the new Travis Scott meal. The meal was exclusive to the McDonald’s app.

On October 1, Wells Fargo reiterated its Overweight rating and raised its target price to $244 from $222.

As for when McDonald’s reports earnings, the Refinitiv consensus estimates are calling for earnings of $1.83 per share and $5.3 billion in third-quarter sales. For 2020 as a whole, the consensus estimates are $5.88 per share and $19.15 billion, versus $7.84 per share and $21.1 billion in 2019.

The current share price of $225.71 is less than the consensus target price of $229.40, but these price target hikes likely will lift that consensus target higher. McDonald’s pays inventors better than a 2.2% dividend yield, and its 52-week trading range is $124.23 to $228.66.