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Are McDonald’s shares worth buying after the Q3 results?

Shares of McDonald’s Corp (NYSE: MCD) are in the green on Thursday after the fast-food giant reported better-than-expected results for its fiscal third quarter.

Analyst reacts to McDonald’s earnings report

McDonald’s attributed the strength in its quarterly performance to price increases that did “not” weigh on traffic. In an interview with Yahoo Finance, Peter Saleh (BTIG) also said:

What stood out was MCD in the U.S. had positive traffic. Consumers aren’t pushing back on prices up about 10%.

Stock is currently trading near the same price at which it started the year 2022. McDonald’s Corp noted a 9.5% annualised growth in its comparable sales this quarter – well above 5.8% expected.

There performance in the IOM market over in Europe was 300 bps better than consensus. That relieves some of the fears that turmoil in Europe will weigh on same-store sales.

Notable figures in McDonald’s Q3 results

Net income printed at $1.98 billion versus year-ago $2.14 billionPer-share earnings also went down from last year’s $2.86 to $2.68Revenue slipped 5.0% on a year-over-year basis to $5.87 billionFactSet consensus was $2.58 of EPS on $5.70 billion in revenueDeclared $1.52 a share of quarterly cash dividend – up 10% YoY

How will McDonald’s shares hold up in a recession?

Currency was a 19 cents per share headwind for earnings this quarter, as per the earnings press release. McDonald’s expects another 14 cents to 16 cents worth of hit in Q4 as well. Still, Saleh said:

We think we’ll continue to see some moderating deflation going into 2023 and given all the pricing that restaurants have taken, it sets them up for some margin expansion that nobody is anticipating at this point.

Saleh recommends buying McDonald’s shares and sees upside in them to $280 – up another 5.0% from here. He’s convinced the stock will hold up well in a recession as well.

Consumer still have to eat. They’re either eating at the grocery store or the restaurant. Grocery store pricing is up more so than restaurants. So, at this point, restaurants are providing a bit more value than they have historically.

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