McDonald's Proves Bigger Is Better Given the state of today's labor market, it is truly surprising to see McDonald's (NYSE: MCD) not only meet the consensus estimates for revenue but blow right through them. The...

McDonald's Exceeds All Expectations

Given the state of today's labor market, it is truly surprising to see McDonald's (NYSE: MCD) not only meet the consensus estimates for revenue but blow right through them. The company is a testament to the idea that bigger is better as it has been able to overcome widespread store closings, cut back hours, and the reduction or elimination of in-store dining. With the company already growing above the pre-pandemic levels and growth still in the forecast it is our view that McDonald's and its 2.3% yield are a tasty treat for investors.

McDonald's Beats And Raises Guidance

McDonald's had a truly stunning quarter considering the negative impact from supply chain and labor shortages being reported across industries. The company netted $6.2 billion in consolidated sales which is good for a gain of 14.4% over last year and beat the Marketbeat.com consensus by 265 basis points. Revenue is driven by strong comps as well, comps are up 12.7% system-wide and more than 10.% versus 2019. In the U.S., a comp of +9.6% beat the consensus of 8.2% on the combination of ticket count, ticket averages, and price increases coupled with strong digital sales and the company's recently launched loyalty program. Comps in the International segment are up nearly 9.0% on a two-year basis.

Moving down the report to the income portion of the statement, there is some margin contraction but less than 100 basis points at the operating level. That is less than expected and aided by revenue strength which carried through to the bottom line. On the bottom line, the company's operating income is up 18% YOY but includes a positive benefit from the sale of stock in the Japanese unit. Adjusting for that, the $2.76 in EPS is up 24% from last year and beat the consensus by $0.29.

Looking forward, the company is expecting revenue strength to continue indefinitely and guided the market higher. McDonald's is now expecting revenue growth in the range of high-teens versus the previously stated mid to high-teens and the consensus estimate for growth in the high teens.

McDonald's Resumes Repurchase Activity

McDonald's has long been a quality dividend payer and that situation is only getting better. The Q3 results and guidance are consistent with the company's history of growth and resulted in a 7% increase in the distribution. The 7% is also in line with the company's history and leaves room for future increases as well. McDonald's is currently paying about 60% of its earnings in dividends and has ample free cash flow on the books. In fact, the company also resumed its buyback program which could be worth 5% to 10% of the market cap over the next few years.

The Technical Outlook: McDonald's Is On Track For New Highs

Shares of McDonald's have been ranging for the past few quarters but that may soon change. The stock is up more than 3.0% in the wake of the Q3 earnings report and on track to continue moving higher in the near term at least. The indicators are consistent with a bottom and reversal within the range and may fire bullish signals very soon. If price action can get above the current all-time high we see this stock moving up into the range of $268 and maybe higher. That compares with the Marketbeat.com consensus estimate of $261 and the high price target of $306 set by Loop Capital earlier this month.