Here's What The Buy-Side Expects From McDonald's

Jan.22.14 | About: McDonald's Corporation (MCD)

McDonald's (NYSE:MCD) is set to report FQ4 2013 earnings before the market opens on Thursday, January 23. McDonald's has been a slow steady stock for many years and has been a member of the Dow Jones Industrial Average since 1985. In recent years increased concern over obesity and related health issues have acted as a catalyst for McDonald's to rebrand itself with many more healthy menu options including popular salads, yogurts and oatmeal items. McDonald's has also focused on its coffee and breakfast options to help stave off competition from Starbucks (NASDAQ:SBUX), which is expected to report earnings later in the afternoon. Here's how the buy-side expects McDonald's to report Thursday morning.

The information below is derived from data submitted to the platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see All Estimates for McDonald's)

The current Wall Street consensus expectation is for McDonald's to report $1.39 EPS and $7.139B revenue while the current consensus from 24 Buy Side and Independent contributing analysts is $1.40 EPS and $7.139B revenue. This quarter the buy-side as represented by the community is expecting McDonald's to beat the Wall Street consensus on profit but come up short on revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average difference between the two groups' forecasts.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The distribution of estimates published by analysts on Estimize range from $1.35 to $1.44 EPS and $6.890B to $7.195B in revenues. This quarter we're seeing a moderate distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A larger distribution of estimates signaling the potential for greater volatility post earnings, and smaller vice versa.

This quarter we saw significant down analyst estimate revisions on McDonald's. The Wall Street EPS consensus decreased from $1.44 to $1.39 while the EPS forecast from fell from $1.42 to $1.40. The Wall Street revenue consensus dropped from $7.189B to $7.139B. The Estimize revenue consensus also decreased from $7.164B to $7.116B at the end of the quarter. Timeliness is correlated with accuracy, and a falling community consensus going into a report is often a bearish indicator.

The analyst with the highest estimate confidence rating this quarter is Gordon who projects $1.45 EPS and $7.190B in revenue. In the Winter 2014 season, Gordon is currently ranked as the 114th best analyst and is ranked 49th overall among over 3,450 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case the highest rated analyst is making a bold call, expecting McDonald's to beat Wall Street on both the top and bottom line by a wide margin.

Disclosure: None.