McDonald's Third Quarter Earnings Preview

By Investopedia Staff | October 16, 2012 AAA

On Friday, October 19, 2012, McDonald's (NYSE:MCD) will report its third quarter earnings.

Earnings are perhaps the single most studied number in a company's financial statements because they show a company's profitability. SEE: How To Decode A Company's Earnings Reports

What to Expect: Analysts are expecting McDonald's to report earnings of $1.47 per share, up 1.4% from a year ago, when the company reported earnings of $1.45 per share.

The consensus estimate is down from $1.54 three months ago, but it hasn't changed in the last month. For the fiscal year, analysts are projecting earnings of $5.41 per share.

Revenue for the quarter is expected to be $7.16 billion, short of last year's reported figure of $7.17 billion by 0.1%. Revenue for the fiscal year is expected to come in at $27.58 billion.

Company Performance: Revenue for McDonald's has been on the rise for four consecutive quarters. It rose 0.2% in the second quarter, 7.1% in the first quarter, 9.8% in the fourth quarter of the last fiscal year and 13.7% in the third quarter of the last fiscal year.

The P/E ratio for MCD is 17.5, below the industry average of 20.0. A low P/E ratio may indicate that the market expects relatively slower earnings growth. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: The P/E Ratio: A Good Market-Timing Indicator

Over the past quarter, the stock price has risen to $93.50 from $92.22 on July 18, 2012. McDonald's' best recent streak was when its price gained $3.15 per share between October 3, 2012 and October 15, 2012.

The Competition: McDonald's franchises and operates fast food restaurants worldwide. Most analysts (14 of 24) rate McDonald's a buy. They are slightly more optimistic about the stock recently, as the number of buy ratings has risen slightly over the past three months.

The company's closest competitor in the restaurants industry is Yum (YUM). Analysts are less optimistic about McDonald's than about Yum. Fourteen out of 20 analysts rate the latter a buy.

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