Jul 28, 2022
[4 min Read]
As you may know, Mcdonald's corporation (NYSE: MCD) is a leader in the Restaurants industry. This analysis will examine MCD's key financial metrics and ratios to determine a price prediction for its stock. Keep in mind that this stock forecast takes several assumptions into account, which may hinder the accuracy of the price target achieved. I'll share my MCD stock price prediction, then show you the approach and assumptions that I used to calculate my MCD stock forecast.
Stock forecasting is hard, I don't know what the future will hold, and neither does Wall Street Analysts. If either of us could, we would be extremely wealthy and never have to work again. What I can say, however, is that we can use available data to determine a reasonable MCD stock forecast to make us more informed and knowledgeable about our potential investments.
The Mcdonald's corporation stock price prediction of $285.36 was derived from 2 main valuation methods (which are averaged for the final price target you see above). I'll dive into the approach to show you how I determined how I “predicted” a stock price of $285.36 for MCD.
This section of the analysis will focus on MCD's forward P/E and EPS ratio estimates in order to get a rough estimate for their future stock price.
MCD's forward Earnings Per Share has been estimated to be $10.69 . Furthermore, MCD's forward Price to Earnings Ratio has been forecasted to reach $26.53. By having both MCD's forward P/E and EPS, we can multiply them together to reach a MCD stock forecast of $283.61 per share.
There are other ways to predict the price for MCD but I would argue that P/E, EPS, and Earnings Growth are the most commonly used financial metrics by analysts and investors. This is why I used them to forecast MCD's stock price.
In order to undergo a comparable analysis, we need to outline MCD's main competitors. These competitors need to have; a stock, valid financial ratios, operations similar to MCD, and a market cap similar to MCD (if possible).
Keeping this in mind, here are MCD's closest competitors:
MCD's current P/E ratio is 27.35, compared to the average P/E ratio of MCD's peers being 34.20. This implies that MCD is undervalued and its share price should change by a factor of 25.05% to be at fair value (based on MCD's P/E compared to the P/E of its peers).
MCD's current ROA ratio is 13.98%, compared to the average ROA ratio of MCD's peers being 14.45%. This implies that MCD is undervalued and their share price should change by a factor of -3.25% to be at fair value (based on MCD's ROA compared to the ROA of their peers).
Overall, MCD stock is undervalued and needs to experience a change in stock price of (an average of) 10.90% to be considered “at fair value”. Applying this percentage change to MCD's current price of $258.89, implies a forecasted price of $287.11
Analyst Ratings have provided a relatively strong indicator of future price movement, which is why they are used to (hopefully) support our MCD stock forecast. There are a total of 34 analyst ratings for MCD, which are distributed as follows:
As you may have been able to tell 88.24% of analysts have given the MCD stock a 'buy" rating. Based off of the current MCD analyst ratings there seems to be an overall bullish sentiment, with analyst "buy" ratings forming a majority of total ratings given. This is great news as the analysts seem to be in agreeance with me and my stance on the MCD stock.
Let's end this analysis by using the information accumulated to answer the question that was posed at the very start of this analysis "Is the MCD stock a buy?"
Based on the overall MCD stock forecast of $285.36 per share (derived from P/E & EPS, and comparable valuations), the current price of MCD is $258.89, and the overall bullish analyst sentiment for the MCD stock, I would agree with the analysts and say MCD is a buy.
Let me know what you think, happy to dive into other aspects of MCD to help you make an informed investment decision.