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McDonald's Corp MCD

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McDonald's Supersized Earnings Impress; Fair Value Estimate Raised Despite Tax Rate Increase

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Wide-moat McDonald’s reported strong third-quarter earnings, with global comparable sales up high single digits (6.9%) relative to 2019 levels. Strength was widespread, with all three operating segments turning positive against a prepandemic baseline, as the famous orders platform, a sustained volume boost from the chicken sandwich launch, and re-opened dining rooms pushed outperformance. We're raising our fair value estimate to $234 per share from $231 prior after adjusting for better digital traction and sustained strength in average check, offset by the incorporation of a 26% U.S. statutory tax rate in 2022 and beyond (up from 21% prior). Shares appear fairly valued at current prices, and we remain optimistic about the long-term benefits of the firm’s digital strategy, which could improve guest frequency and reduce customer churn as McDonald's leverages insights from those channels. 

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Company Profile

Business Description

McDonald’s Corporation is the largest restaurant owner-operator in the world, with 2020 systemwide sales of $93 billion across 39,000 stores and 119 countries. McDonald’s revolutionized the restaurant industry with a cheap and fast core menu, building its impressive footprint through partnerships with independent restaurant franchisees. The firm earns 57% of its revenue from franchise royalty fees and lease payments, with the remainder coming from company-operated stores across its three core segments: the United States, internationally operated markets, and international developmental/licensed. McDonald’s owns 55% of the real estate and 80% of the buildings in its franchise system, offering it substantial leverage in maintaining quality standards and consistency across markets.

110 North Carpenter Street
Chicago, IL, 60607
T +1 630 623-3000
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 200,000