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McDonald's (MCD) Buckles Up for Q2 Earnings: A Beat in Store?

We expect burger giant, McDonald's Corp. MCD, to beat expectations when it reports second-quarter 2017 numbers on Jul 25, before the opening bell.

Last quarter, McDonald's pulled off a positive earnings surprise of 11.36%. In fact, the company’s earnings surpassed the Zacks Consensus Estimate in each of the last eleven quarters, with a trailing four-quarter average earnings surprise of 7.01%.

Let’s see how things are shaping up prior to this announcement.

McDonald's Corporation Price and EPS Surprise


McDonald's Corporation Price and EPS Surprise | McDonald's Corporation Quote

Why a Likely Positive Surprise?

Our proven model shows that McDonald's is likely to beat earnings because it has the perfect combination of the two key ingredients.

Zacks ESP: McDonald's has an Earnings ESP of +1.24% because the Most Accurate estimate is $1.64, while the Zacks Consensus Estimate is pegged lower at $1.62. A favorable Earnings ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: McDonald's currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of McDonald's favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat.

What is Driving Better-than-Expected Earnings?

Global comps at McDonald’s have been positive for the last seven quarters, marking a trend that is likely to continue in the second quarter as well. This appears to be the result of the company’s strategic efforts to boost sales.

In sync with these efforts, the company has been focusing on operational excellence, product innovation, undertaking efficient marketing and promotions, offering a value menu, and rolling out more limited-time offerings to improve guest count – which remains the company’s top priority – and drive the top line.

Moreover, efforts to enhance digital capabilities, increased focus on delivery and accelerated deployment of Experience of the Future restaurants in the U.S. might further propel the quarter’s results.

However, a slowdown in emerging markets and the prevailing challenging restaurant environment in the domestic space are likely to hurt sales. Meanwhile, higher labor costs along with currency headwinds might dent the quarter’s profits.

Other Stocks to Consider

McDonald's is not the only company looking up this earnings season. Here are some other companies to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Yum! Brands, Inc. YUM has an Earnings ESP of +1.64% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Whole Foods Market, Inc. WFM has an Earnings ESP of +2.94% and a Zacks Rank #3.

The Priceline Group Inc. PCLN has an Earnings ESP of +2.31% and a Zacks Rank #3.

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The Priceline Group Inc. (PCLN): Free Stock Analysis Report
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McDonald's Corporation (MCD): Free Stock Analysis Report
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