No-Brainer Stock For A Hawkish Fed

The multi-decade high inflation has kept the stock market under pressure since the beginning of the year. The Federal Reserve has been busy trying to tame persistent inflation through aggressive interest rate hikes.

After raising the benchmark interest rate six times this year, Fed Chairman Jerome Powell has cautioned that the final level of interest rates would be higher than expected.

Despite the overall macroeconomic uncertainty, leading foodservice retailer McDonald's Corporation (MCD) reported impressive financials for the third quarter ended September 30, 2022. The company operates and franchises McDonald’s restaurants with nearly 40,000 locations in over 100 countries.

MCD beat the consensus EPS and revenue estimates in the last reported quarter. Its EPS and revenue were 3.9% and 3% above analyst estimates, respectively. The company’s global comparable sales rose 9.5% year-over-year, while the U.S. comparable sales increased 6.1%. According to Placer.ai., visits to the Chicago-based chain’s U.S. restaurants rose 6.2% in September, compared to the traffic to the quick-service restaurant space rising just 0.8%.

The company’s impressive comparable sales and profit were supported by higher menu prices and increased restaurant traffic. Surging commodity and labor costs led to the company raising the prices of its burgers and fries, but customers flocked to the fast-food chain for its value meals.

MCD Chief Financial Officer Ian Borden said, “We’re gaining share right now among low-income consumers” in the United States. Borden expects the company to ride out the expected recession next year by relying on digital orders and delivery.

MCD’s President and CEO Chris Kempczinski said, “Our third quarter 2022 performance demonstrated broad-based business momentum as global comparable sales increased nearly 10%. I remain confident in our Accelerating the Arches strategy as our teams around the world continue to execute at a high level.”

“As the macroeconomic landscape continues to evolve and uncertainties persist, we are operating from a position of competitive strength. I also want to thank our franchisees, who have done a tremendous job navigating this environment, while providing great value to our customers,” he added.

MCD’s strong fundamentals allowed it to raise dividends for 46 consecutive years. Its dividend payouts have increased at a 6% CAGR over the past three years and an 8% CAGR over the past five years. Its current dividend yield is 2.27%, while its four-year average yield is 2.27%.

The stock has declined 0.1% in price year-to-date, while it has gained 5.9% over the past year to close the last trading session at $267.84.

MCD Chart

Source: MarketClub

Here’s what could influence MCD’s performance in the upcoming months:

Robust Financials

MCD’s revenues from franchised restaurants increased 4.6% year-over-year to $3.67 billion for the third quarter ended September 30, 2022. Its total operating costs and expenses declined 3.3% year-over-year to $3.10 billion. The company’s non-GAAP net income for nine months ended September 30, 2022, increased 5.3% year-over-year to $5.58 billion, and its non-GAAP EPS rose 6.5% year-over-year to $7.51.

Mixed Analyst Estimates

Analysts expect MCD’s EPS for fiscal 2022 and 2023 to increase 7.1% and 5.7% year-over-year to $9.94 and $10.51, respectively. Its revenue for fiscal 2022 is expected to decline 1% year-over-year to $22.98 billion. On the other hand, its revenue for fiscal 2023 is expected to increase 3.1% year-over-year to $23.69 billion. It has surpassed Street EPS estimates in three of the trailing four quarters.

High Profitability

In terms of the trailing-12-month gross profit margin, MCD’s 56.13% is 56.9% higher than the 35.78% industry average. Likewise, its 51.82% trailing-12-month EBITDA margin is 361.5% higher than the industry average of 11.23%. Furthermore, the stock’s 8.84% trailing-12-month Capex/Sales is 193.6% higher than the industry average of 3.01%.

Technical Indicators Show Promise

According to MarketClub’s Trade Triangles, the long-term trend for MCD has been UP since October 28, 2022, and its intermediate-term trend has been UP since October 18, 2022. However, the stock’s short-term trend has been DOWN since November 10, 2022.

MCD Chart

Source: MarketClub

The Trade Triangles are our proprietary indicators, comprised of weighted factors that include (but are not necessarily limited to) price change, percentage change, moving averages, and new highs/lows. The Trade Triangles point in the direction of short-term, intermediate, and long-term trends, looking for periods of alignment and, therefore, intense swings in price.

In terms of the Chart Analysis Score, another MarketClub proprietary tool, MCD, scored +85 on a scale from -100 (strong downtrend) to +100 (strong uptrend), indicating short-term weakness. However, investors could look for the longer-term bullish trend to resume.

Chart Analysis Score

The Chart Analysis Score measures trend strength and direction based on five different timing thresholds. This tool considers intraday price action; new daily, weekly, and monthly highs and lows; and moving averages.

Click here to see the latest Score and Signals for MCD.

What's Next for McDonald's Corporation (MCD)?

Remember, the markets move fast and things may quickly change for this stock. Our MarketClub members have access to entry and exit signals so they'll know when the trend starts to reverse.

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Best,
The MarketClub Team
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