McDonald’s Earnings: Value Leader Performs Ably Despite Turbulent Backdrop; Shares Attractive

Wide-moat McDonald’s MCD continues to prove resilient despite widespread consumer pressure, with its strong value positioning, investments in core menu development, and digital acuity driving another quarter of healthy top-line performance. The firm’s $6.69 billion in sales and $3.17 in diluted EPS comfortably edged our respective $6.29 billion and $2.70 EPS estimates, with nearly 9% global comparable store sales growth attesting to broad-based strength across the firm’s 115-plus global markets. While results comfortably exceeded our quarterly forecasts, we expect to increase our $285 intrinsic valuation by just a low-single-digit percentage as we balance strong results, time value, and worse-than-expected traffic (slightly negative). More concretely, we expect to pull down our 2024 comparable store sales estimates by a couple of points across regions as the competitive environment intensifies, with competition for the breakfast daypart—roughly 25% of McDonald’s sales—and for lower-income clientele remaining intense. Shares strike us as attractive.

The firm continues to fire on all cylinders, making important strides across each pillar of its “MCD” strategic framework. On the marketing side, McDonald’s launched its “as featured in” campaign, celebrating the brand’s appearance in various media outlets over the past 20 years. Regarding menu development, it launched a McSmart value menu, in response to customer demand, and the chain rolled out a popular McCrispy deluxe sandwich in the U.K. Turning to digital, drive-thru, and delivery, the firm now sees 40% of sales come through digital channels in its top six markets, driven by a 57-million-member 90-day active loyalty member base.

On balance, we have few qualms with the firm’s results and continue to view double-digit medium-term EPS growth as attainable between 3%-4% comparable sales growth, mid-single-digit store growth (nearly 4% annually through 2027), margin expansion, and annual share repurchases (averaging 3%).