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Category: Stock Market and Mcdonalds (MCD)
Date: 28 July 2020 Stock Price of Mcdonalds: $196.56 We take a look at the 2nd quarter earnings report of their 2020 fiscal year of Mcdonald's the world's largest burger franchise company. Revenues declined by -20% for the 2nd quarter compared to the same quarter of the previous year.
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Throughout our history, McDonald's has demonstrated the strategic foresight necessary to position our business for the future. Our strong drive-thru presence and the investments we've made in delivery and digital over the past few years have served us well through these uncertain times. We saw continued improvement in our results throughout the second quarter as markets reopened around the world - McDonald's President and Chief Executive Officer Chris Kempczinski"
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: $3.761 billion (down from $5.409billion for the same quarter of the previous year)
- Revenue decreased by -20% over the last 12 months
- Total operating expenses: $2.804 billion (up from $3.135 billion for the same quarter of the previous year)
- Total operating expenses decreased by -11% over the last 12 months
- Significant margin squeeze on Mcdonalds as revenues declined while operating costs increased
- Net income: $483.8 million (down from $1.516 billion for the same quarter of the previous year)
- Diluted earnings per share: $0.65 (down from $1.94 for the same quarter of the previous year)
- Weighted average shares outstanding-diluted: 748.6 million (down from 768.7 million for the same quarter of the previous year)
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, July 28, 2020 /PRNewswire/ -- McDonald's Corporation today announced results for the second quarter ended June 30, 2020.
"Throughout our history, McDonald's has demonstrated the strategic foresight necessary to position our business for the future. Our strong drive-thru presence and the investments we've made in delivery and digital over the past few years have served us well through these uncertain times. We saw continued improvement in our results throughout the second quarter as markets reopened around the world," said McDonald's President and Chief Executive Officer Chris Kempczinski. "I'm especially proud of the way the McDonald's System continues to provide a safe environment for both customers and crew, building on our 65 year legacy as a responsible and reliable choice for safe food. We're confident that the strong foundation we've built, combined with the unique advantages of our System, position us well to continue operating successfully during this pandemic and emerge even stronger."
"Throughout our history, McDonald's has demonstrated the strategic foresight necessary to position our business for the future. Our strong drive-thru presence and the investments we've made in delivery and digital over the past few years have served us well through these uncertain times. We saw continued improvement in our results throughout the second quarter as markets reopened around the world," said McDonald's President and Chief Executive Officer Chris Kempczinski. "I'm especially proud of the way the McDonald's System continues to provide a safe environment for both customers and crew, building on our 65 year legacy as a responsible and reliable choice for safe food. We're confident that the strong foundation we've built, combined with the unique advantages of our System, position us well to continue operating successfully during this pandemic and emerge even stronger."
Restaurant Update
Below is a summary of the operating status of McDonald's restaurants around the world as of June 30, 2020. 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.
PERCENT OF OPERATING RESTAURANTS* As of June 30, 2020
U.S.:
International Operated Markets:
International Developmental Licensed Markets:
Below is a summary of the operating status of McDonald's restaurants around the world as of June 30, 2020. 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.
PERCENT OF OPERATING RESTAURANTS* As of June 30, 2020
- U.S. : 99%
- International Operated Markets 94%
- International Developmental Licensed Markets: 94%
- Total 96%
U.S.:
- Substantially all restaurants were operating drive-thru, delivery, and/or take-away with a limited menu. Limited hours also applied.
- About 2,000 restaurant dining rooms reopened with reduced seating capacity.
International Operated Markets:
- All markets were operating with drive-thru and delivery (where available) with limited menus and hours.
- Some markets were operating take-away and/or dine-in with reduced seating capacity.
International Developmental Licensed Markets:
- Substantially all restaurants in China and Japan were operating with reduced seating capacity for dine-in.
- Latin America was the geography with the most restaurants closed.
Mcdonalds (NYSE: MCD) stock price history
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. With the stock trading at around $99 a share 5 years ago to the current $196.56 it is trading at right now. That's a 98.6% return provided to Mcdonalds stockholders over the last 5 years.
The stock of Mcdonalds is trading at a little closer to its 52 week high of $221.93 than it is to its 52 week low of $124.23 which to us is a clear indication that the short term sentiment and momentum of Mcdonalds stock is positive at this point in time
The stock of Mcdonalds is trading at a little closer to its 52 week high of $221.93 than it is to its 52 week low of $124.23 which to us is a clear indication that the short term sentiment and momentum of Mcdonalds stock is positive at this point in time
Mcdonalds (MCD) stock vs Chipotle (CMG) stock
The image below shows the stock price performance of Mcdonalds (MCD) and Chipotle (CMG) over the last 3 years. And while they are both active in the quick serve food industry their stock price returns provided are vastly different. Over the last 3 years they provided the following returns to stockholders:
- Mcdonalds (MCD):
- Chipotle (CMG):
Recent coverage of Mcdonalds
The extract below discusses the latest regarding Mcdonalds as obtained from Barrons.com
The Golden Arches lost their luster during the early stages of the coronavirus pandemic. But with earnings arriving next week, it’s time for McDonald’s (MCD) stock to regain its shine. McDonald’s was hit hard during the first stages of the pandemic. A quarter of its stores were forced to close. Sales tumbled, and the company had to aid franchisees who saw business collapse because of Covid-19. From the market’s peak on Feb. 19 through its low on March 23, McDonald’s stock fell 36%.
Read the full article here
The Golden Arches lost their luster during the early stages of the coronavirus pandemic. But with earnings arriving next week, it’s time for McDonald’s (MCD) stock to regain its shine. McDonald’s was hit hard during the first stages of the pandemic. A quarter of its stores were forced to close. Sales tumbled, and the company had to aid franchisees who saw business collapse because of Covid-19. From the market’s peak on Feb. 19 through its low on March 23, McDonald’s stock fell 36%.
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 (full value) price at $142.10 a share (down from our 1st 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 $142.10 a stock. We therefore believe a good entry point into the stock of Mcdonalds is at $127.90 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 $142.10 a stock. We therefore believe a good entry point into the stock of Mcdonalds is at $127.90 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 3rd quarter 2020 earnings release will be released in late October 2020