An the stock markets, McDonald’s has always been seen as a defensive stock that can hold its own (relatively) well in difficult economic times. The idea is that in times of economic downturn or in the wake of high inflation, customers need to hold onto their money tighter. Therefore, it makes sense to avoid expensive restaurants and instead eat the cheaper burgers and fries from the American fast food chain. Whether such a practice is beneficial to health is another question entirely…
However, the most recent price development of McDonald’s shares and the report for the second quarter of the 2022 fiscal year show – at least for investors – that there seems to be something to this theory. As was to be expected, the past quarter was also marked by events surrounding the war in Ukraine at McDonald’s. The company had announced its withdrawal from the Russian market and agreed a deal with the previous licensee Alexander Govor in May.
Christoph Scherbaum is a stock exchange specialist and financial journalist from Ludwigsburg.
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Image: Christoph Scherbaum
Govor takes over all branches in the country and will continue to run them under a different brand in the future. In the most recent quarterly report, this led to a write-down of $1.2 billion. Apart from that, the group was able to score with its international business and prove its resilience.
The fast food chain continues to beat expectations
Between April and June, like-for-like sales—that is, in stores that have been open for at least a year—climbed 9.7 percent year-on-year globally. On the domestic US market, however, the plus was only 3.7 percent. In the home market, McDonald’s was helped by higher prices, while operations in China were weighed down by the COVID-19-related lockdowns.
Group-wide, revenue fell 3 percent to $5.7 billion, while profit shrank 46 percent to $1.2 billion. However, on an adjusted basis, the market’s earnings expectations were exceeded. Analysts were correspondingly satisfied with the latest figures from McDonald’s.
Analysts are also impressed by McDonald’s
Barclays analyst Jeffrey Bernstein, for example, highlighted the continued strong sales momentum. This has recently been above consensus in all segments, which would drive earnings growth. As such, he maintains an “Overweight” rating on McDonald’s stock, while the target price has been slightly lowered to $285.00 from $289.00.
At BMO Capital, on the other hand, it was even enough to raise the price target after the latest figures were announced. Analyst Andrew Strelzik now expects the share to trade at $285.00, down from $270.00 previously. Here the rating is “Outperform”. According to Strelzik, McDonald’s was able to experience strong momentum in the second quarter in a difficult environment and contrary to high expectations with the increase in profits. In his view, McDonald’s continues to prove that it is among the best-positioned companies to deal with deteriorating consumer sentiment. A look at the chart technique also supports this statement for long-term investors:
McDonald’s is a reliable dividend payer
After McDonald’s shares were briefly knocked back to $124 in March 2020, prices went back into a steep upward trend. The price more than doubled in the following 22 months, with a new record high of $271 being marked in January 2022. After falling to $218 in March, prices rose to $259 at times by the end of July. If the catch-up movement continues, the most recent all-time high should be tackled shortly. If the breakout succeeds, the next medium-term price target is around the 300 mark.
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For detailed view
New historical tops are virtually pre-programmed at McDonald’s, as the long-term price history shows. Thanks to the generally comparatively high price stability, prices have risen by an average of 12.4 percent annually over the past 20 years. This far exceeded the result of the Dow Jones (average price gain: +6.7 percent pa), in which McDonald’s is listed.
The McDonald’s share is a very good choice, especially for conservative, long-term investors, especially since the burger chain is one of the most reliable dividend payers in the world. The dividend (current dividend yield: 2.1 percent) has been increased here every year for 46 years. This makes McDonald’s one of the so-called Dividend Aristocrats who have been increasing their dividends continuously for at least 25 years.