McDonald’s Stock Sizzles, but Will it Hit a New All-Time High?

McDonald’s Stock Sizzles, but Will it Hit a New All-Time High?
Photo by VLADISLAV BOGUTSKI / Unsplash

Written By Thomas Hughes

Shares of McDonald’s Corporation (NYSE: MCD) sizzle in the wake of its Q3 earnings report. It looks like shares could set a new all-time high very soon.

The combination of business strength, dividend health, dividend growth and sell-side support have rocketed the company higher but also fire a strong technical signal as well.

Taken at face value, it seems like a no-brainer for income investors to buy into a best-in-breed stock at a time like this, but there are still risks ahead.

McDonald's stock and the company in general have experienced strength now but it may not last because upside potential could be limited. Not only is the FX headwind expected to strengthen over the coming year, but rising inflation and interest rates are still the backdrop upon which the economy operates.

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McDonald’s Rises on Impressive Quarter

McDonald’s had a great quarter supported by gains in all segments. The only truly bad news is that a 700 basis point FX headwind sapped growth and resulted in a decline in revenue versus last year.

The $5.87 billion in revenue has dipped 5.3% versus last year but beat the consensus figure by $0.170 billion, or nearly 300 basis points, so the bad news wasn’t as bad as expected and strength carried through to the bottom line as well.

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On a segment basis, all segments posted growth with the U.S. up 6.5%, international up 8.5% and international developing markets up a much stronger 16.7%. On a comp basis, global comps were up 9.5% on an FX-neutral basis and beat the consensus by 5.8% as well.

Moving down the report, the FX headwind cut into earnings and resulted in a decline in gross and operating margins. Operating margins contracted by 4% compared to the larger 5.3% contraction in revenue and led to strength on the bottom line and a larger-than-expected dividend increase.