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Category: Stock Market and Mcdonalds (MCD)
Date: 10 November 2020 Stock Price of Mcdonalds: $213.12 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of Mcdonald's the world's largest burger franchise company. Revenues declined by -5% for the 3rd quarter compared to the same quarter of the previous year. Revenue for the quarter came in by $5.418 billion and net income of $1.762 billion.
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The resilience of the McDonald's system was on display during the third quarter as the competitive strength of our business and the 3 D's – Digital, Delivery and Drive Thru – led to significant global comparable sales recovery - McDonald's Chief Financial Officer Kevin Ozan"
About Mcdonalds
The McDonald Brothers
Dick and Mac McDonald moved to California to seek opportunities they felt unavailable in New England. Failing in the movie business, they subsequently proved successful in operating drive-in restaurants. In 1948 they took a risk by streamlining their operations and introducing their Speedee Service System featuring 15 cent hamburgers. The restaurant’s success led the brothers to begin franchising their concept—nine becoming operating restaurants.
Ray Kroc
A native Chicagoan, Ray Kroc left high school after his sophomore year to join the World War One Red Cross Ambulance Corps. The war ended before his unit was sent overseas with Ray returning home to earn a living as a musician and later selling paper cups. In 1939, he became the exclusive distributor of the Multimixer (a milkshake mixing machine). He visited the McDonald brothers in 1954 which led to him becoming their franchise agent. He opened up the first restaurant for McDonald’s System, Inc., a predecessor of McDonald’s Corp. in Des Plaines, Illinois in April, 1955. McDonald’s acquired the rights to the brother’s company in 1961 for $2.7 million.
Going Global
Ray Kroc’s vision was that there would be 1,000 McDonald’s restaurants solely in the United States. Yet, McDonald’s continued to grow and expand into international markets beginning in 1967 opening in Canada and Puerto Rico. Today, the company has over 36,000 restaurants in over 100 nations. The most recent opening in Kazakhstan in 2016.
Dick and Mac McDonald moved to California to seek opportunities they felt unavailable in New England. Failing in the movie business, they subsequently proved successful in operating drive-in restaurants. In 1948 they took a risk by streamlining their operations and introducing their Speedee Service System featuring 15 cent hamburgers. The restaurant’s success led the brothers to begin franchising their concept—nine becoming operating restaurants.
Ray Kroc
A native Chicagoan, Ray Kroc left high school after his sophomore year to join the World War One Red Cross Ambulance Corps. The war ended before his unit was sent overseas with Ray returning home to earn a living as a musician and later selling paper cups. In 1939, he became the exclusive distributor of the Multimixer (a milkshake mixing machine). He visited the McDonald brothers in 1954 which led to him becoming their franchise agent. He opened up the first restaurant for McDonald’s System, Inc., a predecessor of McDonald’s Corp. in Des Plaines, Illinois in April, 1955. McDonald’s acquired the rights to the brother’s company in 1961 for $2.7 million.
Going Global
Ray Kroc’s vision was that there would be 1,000 McDonald’s restaurants solely in the United States. Yet, McDonald’s continued to grow and expand into international markets beginning in 1967 opening in Canada and Puerto Rico. Today, the company has over 36,000 restaurants in over 100 nations. The most recent opening in Kazakhstan in 2016.
Overview of Mcdonalds' 2nd quarter 2020 earnings report
The data the below refers to the latest quarter's data unless specified otherwise
Breakdown of McDonalds stores per country (looking at some of their bigger markets in terms of number of stores)
- Revenue: $5.418 billion (down from $5.502 billion for the same quarter of the previous year)
- Revenue decreased by -5% over the last 12 months
- Total operating expenses: $2.891 billion (down from $3.093 billion for the same quarter of the previous year)
- Total operating expenses decreased by -7% over the last 12 months
- Some margin gain for Mcdonalds as revenues declined at a slower rate than their total cost and expenses
- Net income: $1.762 billion (up from $1.607 billion for the same quarter of the previous year)
- Diluted earnings per share: $2.35 (up from $2.11 for the same quarter of the previous year)
- Weighted average shares outstanding-diluted: 750 million (down from 763 million for the same quarter of the previous year)
- Cash and equivalents: $3.683 billion
- Cash and equivalents per share: $4.90
- Cash and equivalents makes up 2.3% of Mcdonald's market capital
- Cash and equivalents makes up 7.3% of Mcdonald's total assets
Breakdown of McDonalds stores per country (looking at some of their bigger markets in terms of number of stores)
- United States 13,837
- Australia 999
- Canada 1,478
- France 1,485
- Germany 1,484
- Italy 597
- Poland 442
- Russia 732
- United Kingdom 1,323
- Saudi Arabia 310
- South Africa 299
- Turkey 253
- United Arab Emirates 179
- India 315
- Philippines 669
- China 3,383
Mcdonalds' management commentary on their 2nd quarter 2020 earnings report
CHICAGO, IL - McDonald's Corporation today announced results for the third quarter ended September 30, 2020.
“The resilience of the McDonald's system was on display during the third quarter as the competitive strength of our business and the 3 D's – Digital, Delivery and Drive Thru – led to significant global comparable sales recovery,” said McDonald's Chief Financial Officer Kevin Ozan. “Our franchisees and restaurant teams around the world remain focused on running great restaurants and continuing to provide a safe environment for customers to enjoy our great tasting food.”
Results for the quarter reflected stronger operating performance in the U.S. due to higher sales-driven restaurant margins, partly offset by sales performance declines in the International Operated Markets and International Developmental Licensed Markets segments as a result of COVID-19. The nine months reflected sales performance declines in all segments as a result of COVID-19. Results for the quarter and nine months 2020 included $139 million of pre-tax strategic gains, or $0.13 per share, related to the sale of McDonald’s Japan stock, which reduced the Company's ownership by about 3%. Results for the nine months also included $0.01 per share of pre-tax strategic charges primarily due to the write-off of impaired software that was no longer being used of $26 million, partly offset by $13 million of income primarily comprised of a reversal of a reserve associated with the Company's sale of its business in the India Delhi market in January 2020. Results for the nine months 2019 included $80 million of pre-tax strategic charges, or $0.07 per share, primarily related to impairment associated with the purchase of our joint venture partner's interest in the India Delhi market, partly offset by gains on the sales of property at the former Corporate headquarters.
Results also included the following:
• Lower incentive-based compensation expense for the quarter and nine months.
• A net reduction of reserves for bad debts of $27 million for the quarter and an increase of reserves for bad debts of $66 million for the nine months, all related to rent and royalty deferrals.
• The nine months included over $200 million of committed incremental franchisee support for marketing to accelerate recovery and drive growth across the U.S. and International Operated Markets. About $100 million was recorded in the U.S. and the remaining support was recorded in the International Operated Markets segment.
“The resilience of the McDonald's system was on display during the third quarter as the competitive strength of our business and the 3 D's – Digital, Delivery and Drive Thru – led to significant global comparable sales recovery,” said McDonald's Chief Financial Officer Kevin Ozan. “Our franchisees and restaurant teams around the world remain focused on running great restaurants and continuing to provide a safe environment for customers to enjoy our great tasting food.”
Results for the quarter reflected stronger operating performance in the U.S. due to higher sales-driven restaurant margins, partly offset by sales performance declines in the International Operated Markets and International Developmental Licensed Markets segments as a result of COVID-19. The nine months reflected sales performance declines in all segments as a result of COVID-19. Results for the quarter and nine months 2020 included $139 million of pre-tax strategic gains, or $0.13 per share, related to the sale of McDonald’s Japan stock, which reduced the Company's ownership by about 3%. Results for the nine months also included $0.01 per share of pre-tax strategic charges primarily due to the write-off of impaired software that was no longer being used of $26 million, partly offset by $13 million of income primarily comprised of a reversal of a reserve associated with the Company's sale of its business in the India Delhi market in January 2020. Results for the nine months 2019 included $80 million of pre-tax strategic charges, or $0.07 per share, primarily related to impairment associated with the purchase of our joint venture partner's interest in the India Delhi market, partly offset by gains on the sales of property at the former Corporate headquarters.
Results also included the following:
• Lower incentive-based compensation expense for the quarter and nine months.
• A net reduction of reserves for bad debts of $27 million for the quarter and an increase of reserves for bad debts of $66 million for the nine months, all related to rent and royalty deferrals.
• The nine months included over $200 million of committed incremental franchisee support for marketing to accelerate recovery and drive growth across the U.S. and International Operated Markets. About $100 million was recorded in the U.S. and the remaining support was recorded in the International Operated Markets segment.
RESTAURANT UPDATE
The Company has continued to follow the guidance of expert health authorities to ensure the appropriate precautionary steps are taken to protect the health and safety of our people and our customers. The Company began the third quarter with nearly all restaurants globally open for business, and which currently remain open as of the date of filing. However, as a result of COVID-19 resurgences, since September, there have been numerous instances of government restrictions on operating hours, limited dine-in capacity in most countries and, in some cases, mandated dining room closures. These restrictions are impacting most of the Company's key markets outside of the U.S., including France, Germany, Canada and the U.K. The Company expects some restrictions in various markets so long as the COVID-19 pandemic continues
The Company has continued to follow the guidance of expert health authorities to ensure the appropriate precautionary steps are taken to protect the health and safety of our people and our customers. The Company began the third quarter with nearly all restaurants globally open for business, and which currently remain open as of the date of filing. However, as a result of COVID-19 resurgences, since September, there have been numerous instances of government restrictions on operating hours, limited dine-in capacity in most countries and, in some cases, mandated dining room closures. These restrictions are impacting most of the Company's key markets outside of the U.S., including France, Germany, Canada and the U.K. The Company expects some restrictions in various markets so long as the COVID-19 pandemic continues
Mcdonalds (NYSE: MCD) stock price history over the last 5 years
The image below, obtained from Google shows the stock price history of Mcdonalds over the last 5 years. And the stock has provided excellent returns for the group's stockholders over the last 5 years. 5 years ago to stock of Mcdonalds was trading at $110 a stock and its currently trading at $213.22. Thats a very healthy return of 93.6% provided to Mcdonald's stockholders over the last 5 years.
The stock of Mcdonalds is trading at a little closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Mcdonald's stock is positive at this point in time
The stock of Mcdonalds is trading at a little closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Mcdonald's stock is positive at this point in time
Mcdonalds (MCD) stock vs Chipotle (CMG) stock over the last 5 years
The image below shows the stock price performance of Mcdonalds (MCD) and Chipotle (CMG) over the last 5 years. And while they are both active in the quick serve food industry their stock price returns provided are vastly different. Over the last 5 years they provided the following returns to stockholders:
The stock of Chipotle has easily outperformed the stock of McDonald's over the last 5 years.
- Chipotle (CMG): 131.70%
- Mcdonalds (MCD): 93.6%
The stock of Chipotle has easily outperformed the stock of McDonald's over the last 5 years.
Recent coverage of Mcdonalds
The extract below discusses the latest regarding Mcdonalds as obtained from Investors.com
Fast-food burger chain McDonald's (MCD) reported third-quarter earnings. MCD stock initially jumped, likely boosted by the positive coronavirus vaccine news from Pfizer (PFE) and partner BioNTech (BNTX), but reversed to close lower.
McDonald's Earnings
Estimates: Wall Street expected McDonald's earnings per share to fall 9% to $1.93. Revenue was seen down 1% to $5.37 billion.
McDonald's, in October, said third-quarter same-store sales fell 2.2% overall, led lower by its international business. But U.S. same-store sales rose 4.6%.
Results: McDonald's earnings per share rose slightly to $2.22. Revenue edged down to $5.42 billion. Digital sales accounted for 20% of the total. McDonald's said it's developing its own plant-based patty, McPlant. That's apparently being developed with Beyond Meat (BYND), as opposed to going entirely alone.
Read the full article here
Fast-food burger chain McDonald's (MCD) reported third-quarter earnings. MCD stock initially jumped, likely boosted by the positive coronavirus vaccine news from Pfizer (PFE) and partner BioNTech (BNTX), but reversed to close lower.
McDonald's Earnings
Estimates: Wall Street expected McDonald's earnings per share to fall 9% to $1.93. Revenue was seen down 1% to $5.37 billion.
McDonald's, in October, said third-quarter same-store sales fell 2.2% overall, led lower by its international business. But U.S. same-store sales rose 4.6%.
Results: McDonald's earnings per share rose slightly to $2.22. Revenue edged down to $5.42 billion. Digital sales accounted for 20% of the total. McDonald's said it's developing its own plant-based patty, McPlant. That's apparently being developed with Beyond Meat (BYND), as opposed to going entirely alone.
Read the full article here
Mcdonalds (NYSE: MCD) latest stock valuation
So based on Mcdonald's latest earnings report, what is our target price for Mcdonalds? Based on Mcdonalds latest earnings release our valuation model provides a target price (full value price) at $137.60 a share (down from our 2nd quarter 2020 Mcdonald's earnings report). We therefore believe the stock of Mcdonalds is overvalued
We therefore believe from a fundamental investing and value perspective the stock price of Mcdonald's is overvalued and we would not recommend buying into the stock at its current price, but rather at levels about 10% below our target price which is at $137.60 a stock. A good entry point into the stock of Mcdonalds MCD) would therefore be at $12390 or below.
We expect the stock of Mcdonalds to pull back from its current levels to closer to our target price in coming weeks and months. We therefore rate the stock the of Mcdonalds as a sell
We therefore believe from a fundamental investing and value perspective the stock price of Mcdonald's is overvalued and we would not recommend buying into the stock at its current price, but rather at levels about 10% below our target price which is at $137.60 a stock. A good entry point into the stock of Mcdonalds MCD) would therefore be at $12390 or below.
We expect the stock of Mcdonalds to pull back from its current levels to closer to our target price in coming weeks and months. We therefore rate the stock the of Mcdonalds as a sell
Next earnings release of Mcdonalds
It is expected that Mcdonalds 4th quarter 2020 earnings release will be released in early February 2021