Source: PaxForex Premium Analytics Portal, Fundamental Insight
McDonald's experienced a temporary dip in its stock price following the release of its first-quarter 2024 earnings, only to swiftly rebound in subsequent trading sessions, indicating a level of confidence among investors. While CEO Chris Kempczinski acknowledged the impact of inflation on consumer behavior, emphasizing that customers are becoming more discerning with their spending, the overall sentiment toward McDonald's remains positive.
Interestingly, inflation concerns, while noteworthy, do not significantly affect McDonald's business model as much as one might assume. In fact, McDonald's operates less like a typical restaurant stock and more like a diversified business entity. Unlike competitors such as Chipotle, where the bulk of revenue is derived directly from restaurant sales, McDonald's revenue streams are more diversified.
In Q1 2024, approximately 38% of McDonald's revenue originated from sales at company-owned restaurants, which represent only about 5% of the total McDonald's restaurant portfolio. The remaining 95% of McDonald's restaurants operate as franchises, with the company collecting franchise fees and rental income from these establishments. Unlike company-owned restaurants, which bear higher operating costs, the franchise model insulates McDonald's from economic fluctuations like recessions and inflation.
Moreover, the majority of McDonald's operating income stems from its franchise operations, highlighting the resilience of this business model. With franchise fees largely unaffected by individual restaurant sales, McDonald's demonstrates a robustness that mitigates the impact of economic challenges.
In conclusion, while inflationary pressures may pose challenges for many businesses, McDonald's unique business model positions it as a resilient player in the market, making it a stable investment choice even amidst economic uncertainties.
In the first quarter, McDonald's reported a 5% increase in overall revenue, reaching $6.2 billion, while managing to limit operating expense growth to just 2%. Consequently, its net income saw a commendable 7% annual growth, totaling $1.9 billion.
Looking ahead, analyst estimates suggest a promising trajectory for McDonald's financial performance. Projections indicate a 10% profit increase for 2024, followed by a 9% rise in 2025. While these figures may not necessarily dazzle growth investors, McDonald's continues to appeal to those prioritizing safety and dividends.
Despite facing challenges, including an 8% decline in stock value over the past year, McDonald's remains steadfast in its commitment to shareholders. Notably, the company raised its dividend by 10% last year, reaching $6.68 per share, marking the continuation of annual dividend increases since 1976, irrespective of economic conditions. This consistent payout history underscores the stock's stability.
Although McDonald's has trailed behind the S&P 500 in recent years, both in the short and medium term, its current discounted stock price presents an opportunity for potential gains. With a dividend yield of 2.4%, significantly above the S&P 500 average, and a price-to-earnings ratio (P/E) near three-year lows, the stock appears poised for a resurgence, potentially offering attractive returns for investors.
While McDonald's may not boast the explosive growth favored by some investors, its reliable income streams, particularly from fixed franchise-related fees, contribute to its resilience. For income investors seeking inflation-resistant returns, McDonald's stock remains an appealing option, offering consistent dividends that outstrip S&P 500 averages. As such, investors considering income-focused strategies may find McDonald's an attractive addition to their portfolios
As long as the price is above 260.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 268.38
- Take Profit 1: 275.00
- Take Profit 2: 283.00
Alternative scenario:
If the level of 260.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 260.00
- Take Profit 1: 255.00
- Take Profit 2: 250.00
