Some stocks just seem to roll right on through the worst of anything. Usually these are major names, connected to companies that seem to have been around forever and show little sign of ever really fading away. McDonald's (NYSE:MCD) is likely counted by many on that list already, and for those who weren't already counting it so, they likely will now after McDonald's latest earnings report.
Beating Expectations on Nearly All Sides
The news was truly fine for the Golden Arches, and showed that the company was well on its way to coming back after the catastrophe that was the second quarter. The company brought in an earnings per share (EPS) total of $2.22 on an adjusted basis, well above the $1.90 that analysts were expecting. Meanwhile, revenues managed to eke out a win as well, turning in $5.42 billion for the quarter against an expected $5.4 billion. A much closer win, but a win nonetheless.
Third-quarter net income proved a win as well, coming in at $1.76 billion, which breaks down into around $2.35 per share. That's up nicely from the third quarter of last year, when coronavirus wasn't even a factor; that third quarter saw net income of $1.61 billion, around $2.11 a share. Some elements of income were removed from the equation, like the sale of shares in McDonald's Japan, but that still allowed the company to pull in $2.22 per share against against a $1.90 figure expected by Refinitiv consensus.
Special Deals Drive Faster Recovery
McDonald's figures weren't all sunshine and chicken nuggets; same-store sales for the entire global chain were down 2.2% for the quarter, but the United States saw same-store sales growth of 4.6% thanks in large part to celebrity-fueled special offers like the Travis Scott package. The rise of spicy McNuggets also fueled gains as people gave the new item a try.
Though there were some sour points to bring up, like the increasing coronavirus restrictions in major European markets like the UK and Germany—McDonald's expects these to be tailwinds to the company for as long as it lasts—there was still sufficient confidence for the McDonald's dividend to increase to $1.29 per share, up 3% over last quarter. The company also looks to shell out $1.6 billion in “capital expenditures,” with about half of that figure going to half of its US restaurants for upgrades and retooling. The company also plans to open another 950 restaurants worldwide, with just over one in four being US-located.
Happy Analysts on a Trending Stock
McDonald's currently holds the classification of a “trending stock” on our latest research, and after the quarter it's had, there's every reason for such a move. However, the stock is also doing well with the wider analyst community, who currently averages a “buy” rating.
Better yet, our latest research finds it a buy on an upward trend, actually more of a buy than it was six months ago. Back then, the figures were seven “hold” ratings and 24 “buy” ratings. Today, it's shifted to six “hold” ratings and 21 “buy” ratings, a slightly better ratio than seen back then. Moreover, the consensus price target has been merrily climbing for those last six months as well, going up from $207.48 to $224.60. Given that McDonald's is trading at $224.99 as of this writing, however, it's likely some price targets will be further adjusted upward in the days ahead. We've already seen two such adjustments in the last week as Telsey Advisory Group upgraded it to $250 from $230, and Royal Bank of Canada did likewise from $220 to $245.
A Brand New Day at McDonald's
There's a value in familiarity. It's nice to know that, when you go to a McDonald's, no matter where it is, you're going to have pretty much the same choices you had in the one closest to your own front door. It's a little slice of home everywhere you go, even if these days you're not exactly going very far. That being said, there's also value in a little novelty, and with McDonald's looking to spark up its menu with Travis Scott meals and spicy McNuggets, it's demonstrating that value well.
With a lot of people still leery of restaurant dining, the “grab something quick” option from a drive-thru window looks a lot more palatable than usual. McDonald's is demonstrating that point nicely, and straddling the lines between people wanting the familiar and people bored to death after being locked up in their own homes for so long. That straddle is giving McDonald's a leg up in the field, and showing us all how a resilient business blends the value of the past and the future to make an excellent present.
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