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McDonald's Q2 Preview: Another EPS Beat Inbound?

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The Zacks Retail – Restaurants Industry has held up relatively well year-to-date, decreasing 15% in value vs. the S&P 500’s decline of 16.3%.

Over the last month, the industry’s performance has been even more robust, increasing 11% in value vs. the S&P 500’s gain of 8%. However, it ranks in the bottom 20% of all Zacks Industries.

One company residing in the sector, McDonalds’s (MCD - Free Report) , is on deck to report quarterly results before the trading session begins on July 26th. We’re all familiar with the fast-food chain and see those golden arches at seemingly every stop.

The company is currently a Zacks Rank #3 (Hold).

How do things shape up heading into the quarterly report? Let’s take a deeper dive to find out.

Share Performance & Valuation

Year-to-date, McDonald’s shares have provided investors with a much-needed layer of valuable defense, declining just 4% and extensively outperforming its Zacks Industry.

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Image Source: Zacks Investment Research

Over the last year, McDonald’s shares have provided investors with much-welcomed green, increasing nearly 9% in value and easily outperforming its Zacks Industry in this timeframe as well.

Zacks Investment Research
Image Source: Zacks Investment Research

The relatively strong share performance is undoubtedly a positive, signaling that buyers have highly defended the stock all year long.

However, MCD shares could be considered overvalued, as displayed by its Value Style Score of a D. The company’s forward earnings multiple resides on the high side at 26.1X and is notably above its five-year median value of 25.2X.

In addition, shares trade at a steep 48% premium relative to the S&P 500’s forward P/E ratio of 17.6X.

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Image Source: Zacks Investment Research

Quarterly Estimates

For the quarter to be reported, the majority of estimate revisions have been upwards, with the Consensus Estimate Trend remaining unchanged. The Zacks Consensus EPS Estimate resides at $2.46, good enough for a respectable 4% uptick in quarterly earnings year-over-year.

Zacks Investment Research
Image Source: Zacks Investment Research

However, the top-line looks to remain flat, with the $5.9 billion quarterly revenue estimate reflecting a slight 0.09% decrease in sales from the year-ago quarter. The chart below illustrates MCD’s revenue on a quarterly basis.

Zacks Investment Research
Image Source: Zacks Investment Research

Quarterly Performance & Market Reactions

McDonald’s has recently found consistency within its bottom-line results, exceeding the Zacks Consensus EPS Estimate in four of its previous five quarterly reports. In addition, the company recorded a solid 4.5% EPS beat in its latest report.

Quarterly sales results have repeatedly been reported above expectations; over its last ten quarterly reports, MCD has posted eight top-line beats.

Furthermore, the market has reacted well to the company’s quarterly reports as of late – shares have moved upwards in five of its previous six reports.

Bottom Line

Earnings are forecasted to increase by low double-digits, but revenue is forecasted to remain flat year-over-year.

Shares could also be considered overvalued; the company’s forward earnings multiple is above its five-year median and it carries a Style Score of a D for Value.

McDonald’s has posted better-than-expected earnings as of late, and quarterly revenue results are consistently above expectations. In addition, the market has recently reacted well to the company’s quarterly reports.

MCD carries an Earnings ESP Score of 3.1% heading into the earnings release.


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