One of the leading hamburger chains, McDonald's Corp. (MCD) is set to report fourth-quarter and full-year 2014 results on Jan 23, 2015. In the last quarter, the company posted a positive surprise of 10.95%. Let’s see what’s in store this season.
Why a Likely Positive Surprise?
Our proven model shows that McDonald's is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.65%. This is very meaningful and a leading indicator of a likely positive earnings surprise.
Zacks Rank: McDonald's has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of McDonald's’ Zacks Rank #3 and +1.65% ESP makes us confident of an earnings beat.
Factors to Consider
Despite a decline in comps, McDonald’s earnings beat the Zacks Consensus Estimate and remained flat year over year in the third quarter owing to a decline in non-operating expense and a minimal increase in total operating costs and expenses. The company has been analyzing its costs structure over the past several months. We expect the focus toward improvement in the cost structure to aid profits in the upcoming quarters too.
The digital wave has hit the U.S. fast casual restaurant sector as more and more restaurants are deploying technology to enhance guest experience. McDonald’s is also working on digital a strategy and mobile technologies, which would help it to further lower costs.
The recent food safety issue in China has been a major deterrent to the company’s sales in the Asia/Pacific, Middle East and Africa region since Jul 2014. Also, issues in other key regions have also been negatively impacting comps of the company. However, the company has undertaken recovery strategies to regain consumer confidence in the affected regions and revive sales in all its served markets. These include product innovation, offering a value menu, rolling out more limited-time offerings, extending the McCafe premium beverage line and executing stronger marketing messages. Management intends to concentrate on service improvement, particularly in the U.S. Three markets in the U.S. have been identified for the implementation of new measures by the third quarter of 2015.
Also, the company has come up with a “Create Your Taste” program that would allow customers to create burgers of their own choice for the first time. The company is also making marketing and promotional offerings and working toward a new organizational structure. These initiatives would help the company to boost sales in the upcoming quarters.
Other Stocks to Consider
Here are some other companies which you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Kona Grill Inc. (KONA) has an Earnings ESP of +11.11% and a Zacks Rank #1 (Strong Buy).
BJ's Restaurants, Inc. (BJRI) has an Earnings ESP of +4.76% and a Zacks Rank #2 (Buy).
Brinker International, Inc. (EAT) has an Earnings ESP of +1.47% and a Zacks Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment