McDonald's Supersized Earnings Impress

Wide-moat McDonald’s MCD reported strong third-quarter earnings, with global comparable sales up high single digits (6.9%) relative to 2019 levels. Strength was widespread, with all three operating segments turning positive against a prepandemic baseline, as the famous orders platform, a sustained volume boost from the chicken sandwich launch, and re-opened dining rooms pushed outperformance. We’re raising our fair value estimate to $234 per share from $231 prior after adjusting for better digital traction and sustained strength in average check, offset by the incorporation of a 26% U.S. statutory tax rate in 2022 and beyond (up from 21% prior). Shares appear fairly valued at current prices, and we remain optimistic about the long-term benefits of the firm’s digital strategy, which could improve guest frequency and reduce customer churn as McDonald’s leverages insights from those channels. Management’s “MCD,” or marketing, core menu, and digital strategy continues to pay off, with all three pillars bolstering results during the quarter. The BTS “famous orders” platform generated substantial media attention, while crispy chicken sandwiches continued to prove incremental, driving 25.9% U.S. comparable store sales growth (14.9% on a two-year stack), the best two-year domestic comp in 15 years. The firm raised its consolidated guidance from midteens system sales growth to mid- to high-teens, with our forecast now calling for 18% growth in 2021 (from 13.5% prior), as international comparable sales accelerate, and U.S. comps remain in the low double digits through the second half of the year. Finally, the firm’s digital strategy continues to pay dividends, with the much-anticipated MyMcDonald’s Rewards launch generating 12 million active users during the quarter, while digital sales ticked up to 19.7% of system sales in the firm’s top 6 markets, by our calculations (clocking in at $8 billion, up 70% from a year ago).

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