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Earnings

McDonald's share price: what to expect in Q2 results

McDonald’s [MCD] share price has had a turbulent 2020 so far. Closed stores and limited delivery options have harmed the fast-food chain’s business. Second-quarter results will have to reflect this but, with lockdown easing and demand for food outlets increasing, things could be looking up. 

So, is McDonald’s share price now on an upward trend? And what should investors look out for in Q2 results?

 

 

What's happening with McDonald's share price?

While McDonald's share price might be trading flat so far this year, with a drop of just 1.03% year-to-date through Friday 24 July’s close, this figure hides what has been a turbulent year. The Mid-March market sell-off saw the stock plummet as lockdown forced restaurants to close and eliminated a major revenue stream for the chain. Since that point, McDonald’s share price has managed to claw back losses, but progress has been volatile, with a second, less extreme sell-off in June. 

 

When does McDonald's report Q2 earnings?

28 July

 

What could move McDonald's share price post-earnings?

Coronavirus impact

Investors interested in McDonald’s share price already have a fairly good idea of how the company has been performing in the second quarter. Last month, the fast-food chain released figures that offer insight as to how it has been performing in recent weeks. In April, comparable sales in the US slumped 19.2% compared to the same month in 2019, while that figure stands at 66.7% for international markets.

The impact is less extreme in the US, largely because 75% of stateside McDonald's restaurants have drive-thru available. Outside the US, however, reopening restaurants has been a slow process.

Still, things are looking up. In May, McDonald’s saw comparable sales decline 20.9% year-on-year, which is at least better than the 39% drop seen in April, and May’s 5%  drop in US revenue year-on-year was an improvement on April’s 19% decline.

These figures seem to suggest that consumer appetite for a Big Mac is returning. If the uptrend continues, McDonald's share price could be facing a healthy upside.

 

Adjusting to the new normal

As a predominantly restaurant-based experience, the coronavirus lockdown has obviously hurt McDonald's business. However, it could also help the company to take advantage of changing consumer trends. A greater shift towards digital systems, refreshed menus and wider delivery could all help McDonald’s in the long term. Some of its losses this quarter may already have been offset by improved delivery, with the company now providing the service from over 25,000 restaurants worldwide.

While the company doesn't offer forward guidance, the strategies it outlines in second-quarter earnings will help investors estimate how much growth McDonald’s share price is likely to enjoy going forward.

 

What are analysts expecting from McDonald’s share price?

Wall Street expects McDonald's to post earnings of $0.74 per share, a significant decrease from the $2.05 seen in the same quarter last year. Revenue is forecast to come in at $3.68bn, a 31.2% drop from the $5.34bn seen last year.

Will McDonald's beat expectations this time around? In the past four earnings reports, the fast-food mainstay has missed Wall Street predictions twice. Last quarter, earnings came in at $1.47 per share, narrowly missing the forecasted $1.57 per share.

$3.68billion

McDonald's forecasted revenue

  

So, time to buy McDonald's?

At this moment in time, McDonald’s share price is balanced on something of a knife-edge. An easing of lockdown should see more customers return, but a second wave could see restaurants close again, and the stock plummet.

Still, July saw Bank of America, Credit Suisse and Jefferies all maintain their Buy rating on McDonald's, indicating that there is confidence in the fast-food chain’s future. For income-seeking investors, McDonald's carries a 2.52% forward dividend yield.

Among the 29 analysts offering estimates on Yahoo Finance, McDonald's carries an average $209.03 price target Hitting this would see a 5.19% upside on McDonald’s share price through 24 July’s close.

Of the 33 analysts offering recommendations on Yahoo Finance, 8 rate McDonald's a Strong Buy and 15 rate it a Buy.

 

Market Cap $147.759bn
PE ratio (TTM) 26.01
EPS (TTM) 7.64
Quarterly Revenue Growth (YoY) -6.2%

McDonald's share price vitals, Yahoo Finance, 27 July 2020

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