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Market Update

Earnings on Tap: McDonalds

Can the fast-food giant push through near-term headwinds?

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 McDonald's (MCD) is slated to report first-quarter numbers ahead of the opening bell Friday. Wall Street analysts estimate earnings to come in at $1.27 per share, up from $1.23 per diluted share reported in the year-ago quarter.

The food giant's fourth-quarter earnings topped Wall Street estimates with profits clocking a gain of 1.4% on account of higher sales in the U.S. The company reported a fourth-quarter profit of $1.4 billion, or $1.38 per share, on revenues of $6.95 billion.

Management, however, issued a cautious outlook saying it expected top- and bottom-line growth to remain pressured over the near term, with January's global comparable sales expected to be negative. Nonetheless, McDonald's remains resilient despite an increasingly challenging environment for restaurant operators, writes Morningstar analyst R.J. Hottovy.

McDonald's enjoys unrivaled scale advantages, an incredibly strong brand, a cohesive franchisee system, and ample international growth opportunities.

Despite a few self-inflected product pipeline and value-menu management missteps during 2012 as well as industry competition that remains fierce, Hottovy doesn't expect McDonald's strong competitive positioning to abate anytime soon.

After gaining more than 16% on a year-to-date basis, the company's shares are trading near Morningstar's fair value estimate.


 

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.