Investor sentiments have been uplifted recently after Federal Reserve Chairman Jerome Powell signaled that smaller rate hikes could be ahead as the Fed continues to fight inflation. Markets had already been anticipating a decrease in interest rate increases to half of a percentage point in December.
In addition, with easing inflation pressures, consumer spending increased significantly in October, providing a solid start to the fourth quarter. Amid robust consumer spending, consumer stocks should benefit.
“Right now, even if consumers do not buy anything more in November and December, real consumer spending is running well above normal, and in no way, shape or form looks like a recession,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
Moreover, the holiday season should further boost consumer spending. Investors can opt for well-established consumer stocks to garner good returns.
McDonald’s Corporation (MCD)
MCD operates and franchises its restaurants in the United States and internationally. The company’s segments include the United States (U.S.), International Operated Markets (IOM), and International Developmental Licensed Markets & Corporate (IDL).
On October 13, MCD declared a quarterly cash dividend of $1.52 per share of common stock payable on December 15, 2022, representing an increase of 10% over the company’s previous quarterly dividend. This reflects the shareholder payback ability of the company.
During the fiscal third quarter that ended September 30, 2022, MCD’s revenues from franchised restaurants increased 4.6% year-over-year to $3.67 billion. Its total operating costs and expenses decreased 3.3% year-over-year to $3.11 million, while the company reported its non-GAAP EPS to be $2.68.
Street expects MCD’s EPS to grow 2.8% year-over-year to $2.62 in the fiscal second quarter ending June 2023. Also, its revenue for the same quarter is expected to increase by 3.5% year-over-year to $5.92 billion. It has surpassed EPS estimates in three of the four trailing quarters.
Over the past six months, the stock has gained 9.6%, closing the last trading session at $271.77. Moreover, the stock increased by 6.8% over the past three months.
MCD’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCD has an A grade for Quality and a B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #15 out of 44 stocks.
In addition to the POWR Ratings stated above, we have also rated MCD for Growth, Value, and Momentum. Click here to get all MCD ratings.
Darden Restaurants, Inc. (DRI)
DRI features some of the most recognizable and successful brands in full-service dining, and through its subsidiaries, DRI owns and operates 1,875 restaurants (as of August 28, 2022) in the name of Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s.
DRI’s Board of Directors declared a quarterly cash dividend of $1.21 per share on the company’s outstanding common stock, which was payable on November 1, 2022, to shareholders. This reflects the cash generation ability of the company.
During the quarter, the company repurchased approximately 1.7 million shares of its common stock for a total cost of approximately $199 million. As of the end of the fiscal first quarter, the company had approximately $912 million remaining under the current $1 billion repurchase authorization. This should boost shareholder returns.
DRI’s net sales increased 6.1% year-over-year to $2.45 billion in the fiscal first quarter ended August 28, 2022. Net cash provided by operating activities of continuing operations increased 137.3% year-over-year to $427.80 million in the same quarter. Furthermore, DRI’s net earnings per share stood at $1.56.
Analysts expect DRI’s revenue and EPS for the fiscal third quarter ended February 2023 to increase 10.1% and 18.8% year-over-year to $2.70 billion and $2.29, respectively.
The stock has gained 13.5% over the past six months and 15.9% over the past three months to close the last trading session at $142.86.
DRI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
DRI has a B grade for Quality. Within the same industry, it is ranked #14.
To see additional POWR Ratings for DRI for Growth, Value, Momentum, Stability, and Sentiment, click here.
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MCD shares were trading at $272.95 per share on Wednesday morning, up $1.18 (+0.43%). Year-to-date, MCD has gained 4.10%, versus a -16.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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