​​​McDonald’s share price and Q4 earnings results preview

[MongiIG]

McDonald’s Q4 2024 earnings preview: what to expect amid Middle East boycott.

Source: Bloomberg

 

Shares McDonald's Price Inflation United States Middle East

 Written by: Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Monday 29 January 2024 15:58

When will McDonald's report its latest earnings?

McDonald’s is set to release its fourth quarter (Q4) 2023 results on 5 February 2024. The results are for the quarter ending December 2023.

Key financial highlights for Q4 2023

Key financial highlights for the upcoming results are as follows:

Revenue of $6.452 billion : +8.86% year-on-year (YoY)

Earnings per Share (EPS) : $2.82: +8.88% (YoY)

Price-to-earnings (P/E) ratio: 25.75

Restaurant margin : 15.48% (versus 5.00% Q4 2022)

Dividend yield: 2.29%

McDonald’s Q4 earnings impacted by Middle East boycott

McDonald's is currently facing challenges from a boycott in the Middle East due to false accusations of supporting Israel. This boycott has had a meaningful impact on the company's business, and analysts will be interested in learning more about the sales impact and how long it is expected to last.

During the earnings call on the 5 February, analysts will also be looking for updates on the sustainability of operating margins in light of last year’s cost inflation. McDonald's has maintained stable margins in recent years through menu price increases and technology initiatives, and investors will want to see evidence that this can continue. Furthermore, there will be interest in an update on McDonald's business in China, which is its third largest market globally. Restoring operations in China to full capacity is crucial for the company's momentum.

McDonald's has strong business fundamentals and a strong brand, which should help it navigate through the difficulties, especially if inflation in the US continues to subside and the country’s economy manages the soft landing analysts currently forecast.

If inflation were to flare up again due to an escalation in the Middle East and the Suez Canal being de facto closed to non-Russian containerships, and perhaps soon oil tankers as well, McDonald's has in the past been successful in passing on price increases without significantly affecting demand and may well do so again. There are limits to its pricing power, though, especially in a potential recession which would negatively affect consumer spending while input and labour costs may increase once more. If market conditions were to worsen, McDonald's could implement discounting strategies to capture market share through value offerings and leveraging its size advantage.

Despite the challenging environment in the Middle East, McDonald's has maintained a strong appetite for its food and beverages. The company is expected to benefit from increased US same-store sales and a larger share of the quick-service market in 2023, driven by the growth of digital orders and value offerings. McDonald's loyalty program, with approximately 25 million active members, has the potential to drive digital sales and increase customer frequency, contributing to the growth of US comparable sales.

The company planned to expand its global franchise in 2023 with 400 openings in the US and 1,500 globally, including 900 in China. These new restaurants were expected to contribute around 1.5% to sales growth in 2023. The upcoming results should shed more light on these expansion plans.

How to trade McDonald’s into the results

Source: Refinitiv

Refinitiv data shows a consensus analyst rating of ‘buy’ for McDonald’s – 11 strong buy, 21 buy and 8 hold - with the median of estimates suggesting a long-term price target of $323.20 for the share, roughly 10.68% higher than the current price (as of 29 January 2024).

McDonald’s technical view

The McDonald’s 23% share price gain from its October $245.73 low to last week’s $302.39 all-time record high has given way to some profit taking ahead of its Q4 results.

The fall through the October-to-January uptrend line at $295.36 puts the mid-December to current January lows at $287.20 to $285.72 back on the plate. As long as this support zone holds, the medium-term uptrend remains intact.

McDonald’s Daily Chart

Source: Tradingview

A fall through and daily chart close below the $285.72 mid-December low would most likely lead to the 200-day simple moving average (SMA) at $283.66 being revisited.

Provided that the next lower late-November low at $278.06 isn’t being fallen through, though, the overall technical picture for the McDonald’s share price remains long-term bullish.

A rise above the current January all-time high at $302.39 would bring the minor psychological $350 region to the fore.

 

 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.