The challenges that have hurt global economies this year have not been able to eat too much into McDonald’s (NYSE:MCD) shares, which declined only about 4% so far this year. After a recent run-through of the company’s business and fundamentals, Tigress Financial Partners analyst Ivan Feinseth emerged with a firm conviction that McDonald’s looks mouthwatering at current levels.
McDonald’s Never Fails to Impress
The multinational fast food chain has been through numerous economic cycles since its inception in 1940. MCD has solidified itself into a somewhat recession-resilient stock in its space. “MCD’s mostly franchise model enables it to participate in revenue growth with minimal impact on other input costs,” observed Feinseth, a five-star rated analyst on TipRanks.
The efforts of McDonald’s to stay relevant in the ever-evolving market includes the integration of advanced technology like AI-supported voice ordering, digital marketing, and supply-chain management, among other things. These efforts are expected to continue to drive consistent market share gains, according to the analyst.
Moreover, another interesting and impressive factor about McDonald’s business model is that it finances its growth initiatives with its strong cash flows. These cash flows are also used to improve shareholder returns through dividend hikes and share repurchases.
Is McDonald’s Overvalued?
The current stock price of McDonald’s is about 31.34x its earnings, which is very close to its five-year highest P/E of 36.03. While this can be considered an expensive valuation, one also should not miss the fact that the valuation has increased over the past five years with very few major changes.
Moreover, the strength of the company’s business provides a meaningful upside to its stock price. Notably, the resilient business model drove the analyst’s decision to hold on to a Buy rating and also raise his price target on MCD to $320 from $314. Feinseth believes that the closure of the McDonald’s chain in Russia will be overcompensated by its ongoing growth initiatives and constant upgradation in menu and appeal.
Justifying his bullish stance, Feinseth noted, “Our price target is also well supported by MCD’s 14.79% projected ROC and 13.08% projected Economic Profit combined with its industry-leading position and incredibly strong brand equity.”
Is McDonald’s a Good Stock to Buy Right Now?
Wall Street is bullish on McDonald’s and has a Strong Buy rating, which is based on 20 Buys and three Holds. McDonald’s average price prediction of $284.45 reflects an upside of 12% from current price levels.
Conclusion: McDonald’s Could Be a Great Addition to Your Portfolio
Feinseth believes that McDonald’s could be a great stock for your investment portfolio. This is because, despite high valuation in terms of price-to-earnings, McDonald’s has had a history of sustained growth based on its operational and innovative excellence. Moreover, economic downcycles have not deterred the company from enhancing shareholder returns through the years. Even in this year’s debacle, where the markets have been roiled by several economic and geopolitical headwinds, the company has relatively outperformed the major market averages.
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