McDonald's Earnings: Strong Marketing and Compelling Value Positioning Drive Supersized Earnings

Wide-moat McDonald’s continues to fire on all cylinders, with $3.17 in adjusted diluted EPS and $6.5 billion in sales blowing past our $2.67 and $6.4 billion estimates, respectively. While we agree with management that the firm is likely to see macroeconomic pressure drive slowing sales growth over the second half of 2023 (and likely into 2024), we remain impressed with the firm’s ability to balance consumer desire for value, franchisee cash flow, and corporate-level profitability. The burger chain posted double-digit same-store sales growth in all three operating segments, with consolidated global comp growth of 11.7% suggestive of meaningful market share gains. As we digest outsize quarterly earnings and factor in an attractive near-term growth roadmap—driven by the firm’s 52 million global loyalty member base, a quickly swelling digital sales mix, success with core menu innovation, and strong value positioning—we expect to raise our $260 fair value estimate by a high-single-digit percentage, leaving shares looking fairly valued. The lift can be largely attributed to volume-driven operating leverage and an uptick in midterm unit development, catalyzed by positive franchisee cash flow during the quarter despite ongoing inflationary pressure.