The latest earnings update McDonald's Corporation (NYSE:MCD) released in December 2018 confirmed that the business benefited from a strong tailwind, eventuating to a double-digit earnings growth of 14%. Today I want to provide a brief commentary on how market analysts perceive McDonald's's earnings growth outlook over the next few years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts' prospects for the upcoming year seems rather muted, with earnings growing by a single digit 4.1%. The following year doesn't look much more exciting, though earnings does reach US$6.7b in 2022.
Although it is useful to be aware of the rate of growth year by year relative to today’s figure, it may be more insightful to evaluate the rate at which the company is moving every year, on average. The advantage of this approach is that we can get a better picture of the direction of McDonald's's earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 4.3%. This means that, we can presume McDonald's will grow its earnings by 4.3% every year for the next few years.
For McDonald's, I've put together three pertinent factors you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is MCD worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether MCD is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of MCD? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.