McDonald's Corporation (MCD) Is a Trending Stock: Facts to Know Before Betting on It

McDonald's (MCD) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future. Over the past month, shares of this world's biggest hamburger chain have returned +7.5%, compared to the Zacks S&P 500 composite's -0.4% change. During this period, the Zacks Retail - Restaurants industry, which McDonald's falls in, has lost 1%. The key question now is: What could be the stock's future direction? Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision. Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock. Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements. For the current quarter, McDonald's is expected to post earnings of $3.16 per share, indicating a change of -0.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -4.6% over the last 30 days. The consensus earnings estimate of $11.71 for the current fiscal year indicates a year-over-year change of -1.9%. This estimate has changed -3.6% over the last 30 days. For the next fiscal year, the consensus earnings estimate of $12.64 indicates a change of +7.9% from what McDonald's is expected to report a year ago. Over the past month, the estimate has changed -4.2%. With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #5 (Strong Sell) for McDonald's. The chart below shows the evolution of the company's forward 12-month consensus EPS estimate: While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth. In the case of McDonald's, the consensus sales estimate of $6.76 billion for the current quarter points to a year-over-year change of +1.1%. The $26.07 billion and $27.31 billion estimates for the current and next fiscal years indicate changes of +2.3% and +4.8%, respectively. McDonald's reported revenues of $6.49 billion in the last reported quarter, representing a year-over-year change of -0.1%. EPS of $2.97 for the same period compares with $3.17 a year ago. Compared to the Zacks Consensus Estimate of $6.65 billion, the reported revenues represent a surprise of -2.42%. The EPS surprise was -3.57%. Over the last four quarters, McDonald's surpassed consensus EPS estimates two times. The company topped consensus revenue estimates two times over this period. Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects. Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is. As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued. McDonald's is graded F on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade. The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about McDonald's. However, its Zacks Rank #5 does suggest that it may underperform the broader market in the near term. From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months. McDonald's Corporation (MCD) : Free Stock Analysis Report

McDonald's Corporation (MCD) Is a Trending Stock: Facts to Know Before Betting on It

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