With the consumer price index and producer-price index rise for October moderating at 7.7% and 8%, respectively, the markets zoomed on hopes of a moderation in interest rate hikes by the Fed. However, Fed officials have pushed back at the suggestion by clarifying that they might have to keep raising rates for some time.
Moreover, with tech layoffs and stressed earnings showing signs of a broad economic slowdown, the 12-month forward prediction for S&P 500 earnings per share is down more than 3% since June, with next year’s forecast down 8%.
“To not get a recession, inflation has to magically come down with no help,” says Karen Karniol-Tambour, co-chief investment officer for sustainability at hedge fund Bridgewater Associates. However, since inflation is much above the acceptable level of 2%, a pause in hike may not be in sight yet.
Amid such uncertain prospects, it could be wise for investors to buy shares of well-entrenched and resilient businesses, McDonald’s Corporation (MCD), Verizon Communications Inc. (VZ), and ADT Inc. (ADT), for sustainable risk-adjusted returns.
McDonald’s Corporation (MCD)
MCD and its franchisees are renowned for operating restaurants globally. The company operates through three segments: 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, to holders on record as of December 1, 2022. This represents an increase of 10% over the company’s previous quarterly dividend.
MCD pays $6.08 annually as dividends. This translates to a yield of 2.23% on the current price. This compares to its four-year average dividend yield of 2.27%. The company increased its dividend payouts for 20 consecutive years.
On September 14, 2022, MCD announced the establishment of a new facility, Speedee Labs, aimed at a new innovative environment creating more opportunities for collaboration and end-to-end development of restaurant solutions and technologies.
For the nine months of the fiscal year ended September 30, 2022, MCD’s revenues came in at $17.26 billion. During the same period, the company’s non-GAAP net income came in at $5.58 billion or $7.51 per share, up 5.3% and 6.5% year-over-year, respectively.
Analysts expect MCD’s revenue and EPS for the fiscal year ending December 2023 to grow 3.1% and 5.8% year-over-year to $23.69 billion and $10.51, respectively. Moreover, the company has surpassed EPS estimates in three of four trailing quarters.
The stock has gained 11.4% over the past month to close the last trading session at $272.51.
It is no surprise that MCD has an overall B rating, which equates to a Buy in our POWR Ratings systems. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCD has an A grade for Quality and grade B for Stability and Sentiment. Within the B-rated Restaurants industry, it is ranked #16 out of 45 stocks.
Click here to see the additional POWR Ratings for Growth, Value, and Momentum for MCD.
Verizon Communications Inc. (VZ)
VZ offers communication, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company provides wireless and wireline communications services and products in the United States through Consumer Group and Business Group segments.
On October 13, 2022, VZ announced that it had begun moving customer traffic onto the new cloud-native, containerized 5G core. The company expects this to positively impact customer experience by providing the most advanced, secure, and robust network to support the remarkable new solutions developed on 5G technology.
On October 5, VZ bagged a new Enterprise Infrastructure Solutions (EIS) contract, worth $1.58 billion over the next ten years, to modernize the global communications infrastructure and provide IT services for each of the Department of State’s (DOS) U.S. embassies, consulates, and other key locations totaling to around 260 around the globe.
VZ’s forward annual dividend of $2.61 per share yields 6.89% at the current price. The company increased its dividends for 18 consecutive years. Its dividends grew at a 2.1% CAGR in the last five years.
During the third quarter of the fiscal year 2022 ended September 30, VZ’s total operating revenues grew 4% year-over-year to $34.2 billion. Wireless service revenue growth and higher wireless equipment revenue more than offset wireline declines and the net impact of merger and acquisition (M&A) activity in 2021.
During the same period, VZ’s adjusted EBITDA and net income came in at $12.2 billion and $5 billion, respectively. As a result, the company’s adjusted quarterly EPS came in at $1.32.
For fiscal 2022 (ending December 31, 2022), VZ’s revenue is expected to increase 2.4% year-over-year to $136.82 billion. Moreover, the company has topped the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 3.3% over the past month to close the last trading session at $37.88.
VZ’s overall POWR Rating of B equates to a Buy, which reflects this promising outlook. It also has a B grade for Stability and Growth.
VZ is ranked #3 among 20 stocks in the Telecom – Domestic industry.
Click here to see the additional ratings of VZ for Growth, Value, Momentum, Sentiment, and Quality,
ADT Inc. (ADT)
ADT provides security, interactive, and innovative home solutions to serve residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB); Commercial; and ADT Solar business (Solar).
On October 26, ADT announced an oversubscription of its tender offer to purchase shares of its common stock. Based on the final count by the depositary for the tender offer, 732,113,312 shares of common stock were validly tendered towards the purchase of up to 133,333,333 shares of its common stock.
On September 6, 2022, ADT announced its partnership with State Farm. State Farm will make a $1.2 billion equity investment in ADT, resulting in State Farm owning approximately 15% of ADT. Additionally, ADT plans to partner with State Farm and build upon its existing relationship with Alphabet (GOOG) (GOOGL), with the later agreeing to commit an additional $150 million to support this opportunity.
On October 13, ADT announced it had issued and sold in a private placement to State Farm 133.3 million shares of ADT common stock for a gross purchase price of $1.2 billion. This deepens the partnership between the companies which expect to deliver safe, smart, and sustainable solutions through innovative offerings, unrivaled safety, and premium experiences.
On August 30, ADT announced its partnership with Uber (UBER) to integrate ADT mobile safety solutions into the Uber app for riders and drivers in the United States to get live help, via phone or text, from ADT professional monitoring agents. This marks yet another addition to ADT’s growing Clientele that utilizes Safe by ADT to power their app-based mobile safety features.
ADT’s forward annual dividend yields 1.52% at the current price level. This compares to its 4-year average dividend yield of 4.44%.
For the third quarter of the fiscal year 2022 ended September 30, ADT’s total revenue increased 21.8% year-over-year to $1.60 billion, while the company’s adjusted EBITDA grew 11.9% year-over-year to $620 million. The company reported an adjusted net income of $83 million or $0.10 per share, compared to an adjusted net loss of $54 million or $0.07 per share in the previous-year quarter.
Analysts expect ADT’s revenue for the fiscal year ending December 2022 to increase 19.9% year-over-year to $6.36 billion. The company’s EPS for the current year is expected to come in at $0.52, compared to a loss of $0.25 per share during the previous fiscal.
ADT’s stock has gained 12.9% over the past month to close the last trading session at $9.22.
ADT’s POWR Ratings reflect its bright prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade for Growth.
ADT is ranked #15 of 60 stocks in the Home Improvement & Goods industry.
Click here to see the additional ratings of ADT for Value, Momentum, Stability, Sentiment, and Quality.
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MCD shares were trading at $273.00 per share on Thursday afternoon, up $0.49 (+0.18%). Year-to-date, MCD has gained 3.54%, versus a -16.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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