McDonald's Corporation MCD is slated to release fourth-quarter 2024 results on Feb 10, before the opening bell.

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In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 1.6%. MCD surpassed earnings estimates in two of the trailing four quarters, the average surprise being 0.7%, as shown in the chart below.

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Trend in Estimate Revision

The Zacks Consensus Estimate for fourth-quarter earnings per share (EPS) has declined to $2.81 from $2.82 in the past 7 days. The estimated figure indicates a 4.8% drop from the year-ago EPS of $2.95. The consensus mark for revenues is pegged at $6.48 billion, indicating 1.1% year-over-year growth.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for McDonald's this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: McDonald's has an Earnings ESP of -1.58%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #4 (Sell) at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Influencing Q4 Performance

McDonald's is expected to report year-over-year revenue growth for the fourth quarter, fueled by strong digital adoption, innovative menu offerings and unit expansion. The company's ability to drive higher average checks through well-planned menu price increases, combined with effective restaurant execution and compelling marketing campaigns, likely bolstered same-store sales.

The continued momentum in digital and delivery channels and the implementation of the Accelerating the Arches strategy position McDonald's for another strong performance.

The company is capitalizing on the growing global demand for chicken, a category surpassing beef in size. The recent rollout of the Chicken Big Mac in the United States and the ongoing expansion of the McCrispy line reflect the company’s commitment to catering to diverse consumer preferences.

McDonald’s is consistently trying to improve its performance in Australia, Canada, France, Germany and the U.K. The company intends to drive comps growth in these markets through the introduction of value meals, customizing the menu to local customer tastes, reimaging of restaurants, efficient marketing and promotions, improved service and increased convenience via delivery and digitalized presence.

With the rollout of self-order kiosks, digital menu boards, table service and the mobile app, customers are offered more choices and flexibility as the company progresses toward its Experience of the Future initiative, which is based on adding technology to its eateries. These efforts are likely to have aided the company’s top line.

We expect total fourth-quarter 2024 company-operated sales to rise 4% year over year to $2,573 million. Revenues from franchised restaurants are expected to be $3,903.5 million, suggesting a 0.9% year-over-year rise.

The company’s fourth-quarter 2024 bottom line is likely to have been hurt by persistent pressure from elevated commodities and wages. Given the inflationary headwinds, its operating margin is anticipated to have been under pressure in the quarter to be reported. In 2024, the company expects commodity costs to increase in the low-single digits.

Price Performance & Valuation

In the past year, the company has gained 0.6% compared with the Restaurant industry's rise of 9.2%. The stock has also underperformed the S&P 500’s growth of 22.5%. Other industry players like Darden Restaurants, Inc. DRI, Starbucks Corporation SBUX and Yum China Holdings, Inc. YUMC have rallied 20.7%, 17.9% and 12.7%, respectively.

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Let us assess the value MCD offers to investors at its current levels.

From the valuation point of view, the stock is trading at a discount. MCD’s forward 12-month price-to-earnings ratio stands at 23.11, lower than the industry’s ratio of 26.78.

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Investment Thoughts

McDonald's faces several challenges ahead of its upcoming earnings release, making it a less attractive investment in the near term. While the company is expected to report modest revenue growth, driven by digital adoption, menu innovation and international expansion, its bottom line remains under pressure due to rising commodity and labor costs. Inflationary headwinds could weigh on operating margins, limiting profit growth despite strong sales initiatives.

Additionally, the company's recent stock performance has lagged the broader market and key industry peers, signaling weaker investor confidence. With inflationary pressures weighing on profitability, investors may want to wait for clearer signs of operational efficiency and earnings stability before considering an entry.

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