McDonald's Corporation (NYSE:MCD) last week reported its latest annual results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. It was a credible result overall, with revenues of US$21b and statutory earnings per share of US$7.88 both in line with analyst estimates, showing that McDonald's is executing in line with expectations. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from McDonald's's 27 analysts is for revenues of US$22.0b in 2020, which would reflect a satisfactory 4.2% increase on its sales over the past 12 months. Statutory earnings per share are expected to increase 8.4% to US$8.54. In the lead-up to this report, analysts had been modelling revenues of US$21.7b and earnings per share (EPS) of US$8.53 in 2020. The consensus analysts don't seem to have seen anything in these results that would have changed their view on the business, given there's been no major change to their estimates.
It will come as no surprise then, to learn that the consensus price target is largely unchanged at US$230. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic McDonald's analyst has a price target of US$255 per share, while the most pessimistic values it at US$195. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. For example, we noticed that McDonald's's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow at 4.2%, well above its historical decline of 5.8% a year over the past five years. Compare this against analyst estimates for the wider market, which suggest that (in aggregate) market revenues are expected to grow 7.3% next year. So although McDonald's's revenue growth is expected to improve, it is still expected to grow slower than the market.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on McDonald's. Long-term earnings power is much more important than next year's profits. We have forecasts for McDonald's going out to 2023, and you can see them free on our platform here.
You can also see whether McDonald's is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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