McDonald's Stock Stabilizes After Earnings. Is It Time to Buy?
McDonald's stock is moving cautiously higher Tuesday after the fast-food chain beat Q3 expectations, but E. coli concerns remain.
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McDonald's (MCD) stock is slightly higher in Tuesday's session after the fast-food giant beat top- and bottom-line expectations for its third quarter, though gains are limited as concerns over an E. coli outbreak linger.
In the quarter ended September 30, McDonald's revenue increased 2.7% year over year to $6.9 billion, driven by a 0.3% increase in comparable-store sales in the United States. Globally, comparable-store sales declined 1.5%. Meanwhile, earnings per share (EPS) were up 1.3% from the year-ago period to $3.23.
"We will stay laser-focused on providing an unparalleled experience with simple, everyday value and affordability that our consumers can count on as they continue to be mindful about their spending," said McDonald's CEO Chris Kempczinski in a statement. "McDonald's will continue to follow our Accelerating the Arches playbook to drive long-term growth globally and win in this environment."
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The results beat analysts' expectations. Wall Street was anticipating revenue of $6.8 billion and earnings of $3.20 per share, according to Yahoo Finance.
"McDonald's comparable restaurant takings have fallen for a second consecutive quarter in a row suggesting that the golden arches' recent focus on value offerings hasn't yet delivered the intended uplift in volumes," said Derren Nathan, head of equity research at Hargreaves Lansdown, said in emailed commentary. "A return to growth in the U.S. was one ray of light, albeit only just. International market struggled with a dip in China, and the impact of the conflict in the Middle East more than offsetting an uplift in Latin America."
Update on McDonald's E. coli outbreak
McDonald's temporarily removed Quarter Pounders and slivered onions from its menu after the Centers for Disease Control and Prevention (CDC) announced an E. coli outbreak linked to the fast-food chain's hamburgers last week.
"While the situation appears to be contained, and though it didn't affect Q3 numbers, it's certainly an important development, which I know is on many of your minds," said CEO Chris Kempczinski on McDonald's conference call, adding that the company is sorry and committed to "making this right," according to CNBC.
On Sunday, McDonald's announced that Quarter Pounders will return to menus nationwide in the coming week. In addition, it will no longer source onions from the supplier linked to the outbreak.
Is MCD stock a buy, sell or hold?
McDonald's is down more than 5% since the E. coli news broke, but remains up roughly 2% for the year to date on a total return basis (price change plus dividends). And Wall Street is mostly bullish on the Dow Jones stock.
According to S&P Global Market Intelligence, the consensus analyst target price for MCD stock is $317.65, representing implied upside of just nearly 7% to current levels. Additionally, the consensus recommendation is Buy.
However, Hargreaves Lansdown's Nathan says that the blue chip stock, which is trading at 23 times forward earnings, "still aren't in bargain territory so expect some more volatility until the damage from the public health scare has been quantified."
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