McDonald’s stock price – a recession-proof stock ahead of Q3 earnings?

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McDonald’s has demonstrated its strength as a value proposition in more difficult times, having outperformed the S&P 500 this year. Will Q3 earnings confirm the more optimistic view?

Source: Bloomberg

 Chris Beauchamp | Chief Market Analyst, London | Publication date: Wednesday 19 October 2022 

When does McDonald’s report earnings?

Fast-food icon McDonald’s reports earnings for its third quarter on 27 October.

McDonald’s stock price – what to expect when it reports earnings?

McDonald’s is expected to report revenue of $2.1 billion for the quarter, down 18.4% year-on-year, while earnings per share are forecast to be $2.58, down 9.8% from a year ago.

McDonald’s might be down 7% for the year so far, but compared to the broader S&P 500, down 22%, that is wonderful outperformance. It is not hard to understand why. In a time of straitened circumstances for many consumers globally, thanks to rising inflation and interest rates, the cheap, dependable restaurant chain offers at least something of an escape from the pressures of daily life, and an easy destination for parents looking to break the monotony of cooking every day.

Last year the food titan reported earnings that were up 53% from a year earlier. Of course this was mostly due to pandemic reopenings, but it underscores the strength of McDonald’s global offering. The value menu offers a compelling choice for hard-pressed consumers, and shows that the company’s food remains part of life even when other things get cut from the budget.

Inflation has hit margins, but the relatively solid performance so far this year (revenues up 11% in Q1 and down just 3% in Q2, and earnings up 19% and 8% respectively) indicate that this stock may be one to weather the ongoing storm in global markets.

McDonald’s stock price – what do the brokers say?

41 brokers currently cover McDonald’s stock. Of these, eleven have ‘hold’ ratings, with the overwhelming majority still rating the stock as a ‘buy’.

This has remained relatively constant over the past two years, and suggests continuing confidence in the outlook for the stock.

Meanwhile, the median target price is $280, indicating upside of 12% from the current $249 stock price.

McDonald’s stock – technical analysis

Like the broader market, McDonald’s stock fell sharply at the start of the year, to a one-year low of $215. This was followed up by a recovery from mid-March that carried the stock to a high around $265 in August.

The weakness in September saw the price dip back to $230, but overall it has recouped most of these losses while testing resistance from the August high.

A recovery back above $254 would suggest a further recovery towards $260 and then on to the August highs. A reversal below the 50-day SMA would bring rising support from the March lows into play.

Source: ProRealTime

A solid play in difficult times

Market falls tend to separate the wheat from the chaff, or at least the expensive high-flyers from the solid performers.

This has been seen with McDonald’s, which, while it is down on the year, is firmly up from the lows of early March. The firm will see further difficulties as a US recession becomes more likely, but it will, to an extent, be a beneficiary of consumers ‘trading down’ from more expensive venues. The recent decision to increase its dividend is a sign of confidence in the outlook, something that cannot be said for many of its sector peers.