Home Market News McDonald’s Stock Surges as Investors Sink Their Teeth into Growth

McDonald’s Stock Surges as Investors Sink Their Teeth into Growth

0
McDonald’s Stock Surges as Investors Sink Their Teeth into Growth

McDonald’s (NYSE:MCD) famous “I’m Lovin’ It” slogan isn’t just a hit with customers – shareholders are gobbling up the stock with fervor. The fast-food behemoth continues to drive up its revenues and earnings at a breakneck speed with no signs of slowing down. Its menu assortment, like a platter of tantalizing treats, is keeping sales climbing in existing locations. Additionally, aggressive expansion plans, including the innovative CosMc’s concept focused on beverages, are fueling optimism for sustained growth. With these factors in play, the outlook for MCD remains overwhelmingly positive.

Double-Digit Growth: A Steady Tide with No Signs of Ebbing

The trajectory of McDonald’s boasting consistent double-digit revenue growth without showing any signs of slowing down is nothing short of astounding. One might expect that the chain’s stores had already tapped out their sales capacity after years in operation.

However, through savvy sales strategies such as incentivizing loyalty program participation and launching the annual Monopoly promotion, McDonald’s has managed to drive increased spending per store. Embracing digital ordering to enhance speed of service and importantly, upholding competitive prices in the face of inflation, have also contributed to the ongoing growth in same-store sales.

For instance, in Canada, McDonald’s retained its popular McMuffin and hot coffee bundle throughout Q4, offering an enticing combo during the crucial morning rush. This move resulted in significant gains in breakfast market share. McDonald’s also promoted in-app orders and highlighted the benefits of the “Ready on Arrival” feature, leading to a 60-second decrease in wait times for curbside pickups nationwide.

As a result of these initiatives, coupled with the company’s menu prices remaining affordable relative to other dining options, same-store sales surged by 9% in Fiscal 2023. With McDonald’s launching 1,547 net new restaurants during the year, bringing the total count to 41,822 locations, total revenues for the year climbed by 10% to $25.5 billion.

Source: MCD’s 10K Filing for FY2023

Expanded Operating Margins Propel Record Profits

The genius of McDonald’s business model lies in its ability to increase profits at a faster rate than its revenues thanks to its franchise-heavy structure. With a remarkable 95% of its locations operating under franchise agreements, the company primarily rakes in money through royalties and rental income from its franchises.

As same-store sales rise, McDonald’s effortlessly reaps higher royalties without incurring additional costs. This dynamic enables the company to enjoy expanding profit margins over time, leading to bottom-line growth outpacing revenue growth. Indeed, in FY2023, McDonald’s operating profit margin hit a record 45.9%, up from 44.6% the previous year, resulting in a 37% surge in net income to $8.47 billion. Share buybacks further bolstered EPS, which soared by 39% to a record $11.56.

Strong Growth Drivers Justify McDonald’s Valuation

McDonald’s growth engines remain robust, signaling strong revenue expansion and, as detailed, even more substantial earnings growth. Notably, the company aims to continue its global expansion and reach 50,000 restaurants by 2027, indicating an acceleration in new openings from the present pace.

Moreover, McDonald’s has identified a lucrative $100 billion category across its top six markets: the beverage-focused experiences segment, where its core business typically lags. In under a year since identifying this opportunity, McDonald’s unveiled the inaugural CosMc’s eatery, which quickly generated significant buzz.

Currently residing in Bolingbrook, IL, this single establishment serves as the launching point for a 10-store trial, with initial revenue impacts expected to be modest. Nonetheless, McDonald’s now possesses the potential to gradually build a new brand within the beverage industry, which could eventually evolve into a major franchise with thousands of outlets. This initiative alone could provide a substantial long-term boost to sales growth on top of McDonald’s core brand.

Therefore, despite McDonald’s sustained stock price climb, the bullish momentum is likely to persist. Meanwhile, the stock’s forward P/E ratio of 22.7 seems justified, considering the company’s robust earnings growth and future growth drivers.

Is MCD Stock a Buy, According to Analysts?

Assessing Wall Street sentiment on the stock, McDonald’s boasts a Moderate Buy consensus rating, based on 18 Buys and eight Holds issued in the past three months. With an average stock forecast of $323.24, MCD shares are anticipated to offer an upside potential of 14.3%.

If you’re contemplating which analyst to follow for guidance on MCD stock transactions, the most precise analyst tracking the stock (over a one-year timeframe) is David Palmer from Evercore ISI, posting an average return of 16.14% per rating with a whopping 98% success rate. Explore more by clicking on the image below.

The Bottom Line

In essence, McDonald’s shows no signs of slowing down, maintaining remarkable double-digit revenue surges while achieving peak operating margins and earnings. Through strategies like digital innovation, clever menu pairings, and competitive pricing, the company is successfully attracting growing foot traffic into its stores and even securing market share in key segments.

The firm’s ambition to hit 50,000 stores by 2027 and the potential for CosMc’s to burgeon into a lucrative franchise opportunity could further bolster its financial performance. As such, the stock’s upward momentum seems poised to endure, particularly in light of its reasonable valuation levels.

Disclosure

The opinions voiced in this article are those of the author and do not necessarily reflect those of Nasdaq, Inc.