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McDonald's Preview: Likely to Beat

Zacks Equity Research

We expect fast food giant McDonald’s Corp. (MCD) to beat expectations when it reports fourth quarter and full year 2012 results on Jan 23 before the opening bell.

Why a Likely Positive Surprise?

Our proven model shows that McDonald’s is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate which stands at $1.34 and the Zacks Consensus Estimate that stands at $1.33, is at +0.75%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks #3 Rank (Neutral): McDonald’s currently retains a Zacks Rank # 3 (Hold).  

The combination of the stock’s Zacks Rank #3 (Hold) and +0.75% ESP makes us confident of a positive earnings beat this announcement.

What is Driving the Better Than Expected Earnings?

After relatively weak performances in the recent past and a monthly decline in Oct, (not seen in a decade), same-store sales (comps) at McDonald’s bounced back in Nov 2012.

In fact, the company had to resort to a series of initiatives to counter comps slowdown. Re-emphasis on value menu as well as the return of McRib limited time offering, in mid-December, is expected to drive results this quarter.

Investors should note that McDonald’s will likely face easy comparisons across the globe as the year 2013 progresses. Further, one of the company’s recent products, “Mighty Wings”, currently on a test run, can see a national rollout in the near future. This is expected to provide this Illinois-based fast food operator with a shot in the arm.

Other Stocks to Consider

Other than McDonald’s, we also see likely earnings beats coming from three industry peers this earnings season.

AFC Enterprises Inc. (AFCE): Earnings ESP of +9.09% and Zacks Rank #1 (Buy).

Bob Evans Farms Inc. (BOBE): Earnings ESP of +3.90% and Zacks Rank #1 (Strong Buy).

Chuy's Holdings Inc. (CHUY): Earnings ESP of +25.00% and Zacks Rank #2 (Buy).

Read the Full Research Report on MCD

Read the Full Research Report on BOBE

Read the Full Research Report on AFCE

Read the Full Research Report on CHUY

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