McDonald’s stock (NYSE: MCD), a restaurant chain with over 40,000 mostly franchised stores, is expected to report its fiscal first-quarter results on April 30. It is anticipated that both revenues and earnings will surpass expectations for Q1. Despite major currencies weakening against the U.S. dollar, McDonald’s was able to offset this headwind through menu price increases. The company built up cash reserves during the pandemic, reaching $4.7 billion by 2021, which was invested in drive-thru and delivery services. By the end of 2023, McDonald’s had grown its cash reserves to $4.6 billion.
For 2024, McDonald’s projects net restaurant unit expansion will contribute nearly 2% to systemwide sales, with operating margin expected to be in the mid-to-high 40% range. Capital expenditures are estimated to be between $2.5B and $2.7B, with over half being used for restaurant expansion globally. The company plans to open more than 2,100 new restaurants worldwide in 2024, aiming to reach 50,000 restaurants by the end of 2027. Free cash flow conversion rate is projected to be in the 90% range by the end of 2024.
Despite showing strong gains of 30% from early 2021 to now, MCD stock has experienced inconsistent performance, with returns of 25% in 2021, -2% in 2022, and 13% in 2023. In comparison, the S&P 500 saw returns of 27% in 2021, -19% in 2022, and 24% in 2023. Trefis High Quality (HQ) Portfolio has outperformed the S&P 500 consistently over recent years, offering better returns with less risk. Aligning with this, McDonald’s valuation is forecasted to be $301 per share, 10% higher than the current market price.
In terms of Q1 2024 earnings, McDonald’s revenues are predicted to be around $6.2 billion, slightly ahead of consensus estimates. Global comparable sales increased by 3.4% in Q4 2023, with positive sales across all segments. The company’s EPS for Q1 is expected to be $2.75, slightly higher than the consensus estimate. The impact of the Middle East war has negatively affected systemwide sales for McDonald’s, particularly in the International Developmental Licensed Markets and Corporate segment.
Looking ahead, it is crucial to consider how uncertainties such as high oil prices and elevated interest rates may affect McDonald’s performance in the future. With the potential for MCD to face challenges in outperforming the S&P 500 in the coming year, evaluating its strategies and financial outlook will be essential. In conclusion, McDonald’s has demonstrated resilience and growth potential amidst external challenges, positioning itself to navigate evolving market conditions and deliver value to investors.