4 Stocks to Buy Instead of TSLA as Its Downtrend Continues

Posted on by The INO.com Team

Tesla, Inc. (TSLA) aims to sell 20 million EVs a year by the end of this decade. However, the company faces steep competition from other manufacturers as they launch their battery electric vehicles (BEVs) and invest in ramping up their EV manufacturing capabilities.

To ward off competition and economic uncertainty, TSLA has cut the prices of its vehicles this year. Recently, the company cut the prices for Model 3, Model S, and Model X in the United States. In China, TSLA reduced Model S and X prices. The company has been focusing on boosting volume growth by lowering prices, but it is affecting its gross margins.

Due to price cuts, discounts, and tax credits, the company reported delivering a record-setting 466,140 vehicles during the second quarter. However, Wall Street analysts have cut TSLA’s third-quarter delivery estimates by 2%. They expect the EV maker to deliver 462,000 vehicles during the third quarter.

TSLA CEO Elon Musk had said during the second-quarter earnings call that although it was sticking to its target of producing 1.8 million vehicles, third-quarter production would take a hit due to essential factory upgrades that would take place during the quarter.

Some analysts have forecasted that delivery numbers will be less than 460,000 units. Deutsche Bank analyst Emmanuel Rosner lowered his delivery expectations to 440,000, down from his previous forecast of 455,000. Baird analyst Ben Kallo has projected that the third quarter deliveries would be 439,200 units.

Rosner said, “Tesla’s 3Q 2023 deliveries and production could miss Street expectations, but more important, we see meaningful downside risk to 2024 consensus due to limited volume growth next year.” The analyst has cut its target price on TSLA to $285 from $300.

Amid the confusion over the third-quarter deliveries and production figures, many analysts are worried that TSLA’s production next year will be lower than the previous estimates. Deutsche Bank believes the EV maker’s earnings could face headwinds in 2024. In an investor meeting, they said that TSLA suggested that it was not looking to ramp up production at its Austin and Berlin factories to 10,000 units per week next year.

The bank has forecasted that TSLA will produce 2.1 million units next year, down from the previous consensus estimate of 2.3 million units. They also reduced the price target of TSLA to $285 per share from $300.

Moreover, TSLA is currently trading at an expensive valuation. In terms of forward EV/EBITDA, TSLA’s 42.58x is 364% higher than the 9.18x industry average. Likewise, its 7.47x forward EV/Sales is 564.3% higher than the 1.12x industry average. Its 70.97x forward non-GAAP P/E is 410.1% higher than the 13.91x industry average.

Given the uncertainty surrounding TSLA’s near-term prospects, it could be wise to buy fundamentally strong auto stocks Ferrari N.V. (RACE), General Motors Company (GM), Li Auto Inc. (LI), and NIO Inc. (NIO).

Let’s discuss these stocks in detail.

Ferrari N.V. (RACE)

Headquartered in Maranello, Italy, RACE designs, designs, produces, and sells luxury sports cars worldwide. The company offers a range, special series, Icona, and supercars; limited edition supercars and one-off cars; and track cars. It also provides racing cars, spare parts and engines, and after-sales, repair, maintenance, and restoration services for cars.

RACE’s revenue grew at a CAGR of 18.2% over the past three years. Its EBITDA grew at a CAGR of 24.2% over the past three years. In addition, its EPS grew at a CAGR of 29.1% in the same time frame.

In terms of the trailing-12-month net income margin, RACE’s 19.46% is 342.8% higher than the 4.40% industry average. Likewise, its 30.86% trailing-12-month EBITDA margin is 180.3% higher than the industry average of 11.01%. Furthermore, the stock’s 6.73% trailing-12-month Capex/Sales is 109.4% higher than the industry average of 3.22%.

RACE’s net revenues for the second quarter ended June 30, 2023, increased 14.2% year-over-year to €1.47 billion ($1.55 billion). Its adjusted EBITDA rose 32.1% over the prior-year quarter to €589 million ($620.54 million). The company’s adjusted EBIT increased 35.3% year-over-year to €437 million ($460.40 million).

Its adjusted net profit rose 33.1% year-over-year to €334 million ($351.89 million). Also, its adjusted EPS came in at €1.83, representing an increase of 34.6% year-over-year.

Analysts expect RACE’s revenue for the quarter ending September 30, 2023, to increase 25.8% year-over-year to $1.55 billion. Its EPS for the fiscal period ending March 2024 is expected to increase 8.8% year-over-year to $1.94. It surpassed the consensus EPS estimates in each of the trailing four quarters.

General Motors Company (GM)

GM designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provides software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments.

On August 16, 2023, GM invested $60 million in a Series B financing round of AI and battery materials innovator Mitra Chem. The company’s AI-powered platform and advanced research and development facility in Mountain View, California, will help accelerate GM’s commercialization of affordable EV batteries.

Gil Golan, GM vice president, Technology Acceleration and Commercialization, said, “This is a strategic investment that will further help reinforce GM’s efforts in EV efforts in EV batteries, accelerate our work on affordable battery chemistries like LMFP, and support our efforts to build a U.S.-focused battery supply chain.

On April 25, 2023, GM and Samsung SDI announced that they plan to invest more than $3 billion to build a new battery cell manufacturing plant in the United States, slated to start operations in 2026.

GM Chair and CEO Mary Barra said, “GM’s supply chain strategy for EVs is focused on scalability, resiliency, sustainability, and cost-competitiveness. Our new relationship with Samsung SDI will help us achieve all these objectives. The cells we will build together will help us scale our EV capacity in North America well beyond 1 million units annually.”

GM’s revenue grew at a CAGR of 13.6% over the past three years. Its EBIT grew at a CAGR of 46.6% over the past three years. In addition, its net income grew at a CAGR of 82.4% in the same time frame.

In terms of the trailing-12-month levered FCF margin, GM’s 7.27% is 42.3% higher than the 5.11% industry average. Likewise, its 15% trailing-12-month Return on Common Equity is 34.2% higher than the industry average of 11.17%. Furthermore, the stock’s 5.95% trailing-12-month Capex/Sales is 84.9% higher than the industry average of 3.22%.

For the second quarter ended June 30, 2023, GM’s total revenues increased 25.1% year-over-year to $44.75 billion. Its net income attributable to stockholders rose 51.7% year-over-year to $2.57 billion. The company’s adjusted EBIT rose 38% year-over-year to $3.23 billion. Also, its adjusted EPS came in at $1.91, representing a 67.5% increase year-over-year.

For the quarter ending September 30, 2023, GM’s revenue is expected to increase 3.9% year-over-year to $43.52 billion. Its EPS for fiscal 2023 is expected to increase 1.5% year-over-year to $7.70. It surpassed the consensus EPS estimates in each of the trailing four quarters.

Li Auto Inc. (LI)

Headquartered in Beijing, the People’s Republic of China, LI designs, develops, manufactures, and sells new energy vehicles in the People’s Republic of China. The company provides Li ONE and Li L series smart electric vehicles. It also offers sales and after-sales management, technology development, corporate management services, as well as purchases of manufacturing equipment.

LI’s revenue grew at a CAGR of 263.4% over the past three years. Its total assets grew at a CAGR of 115.8% over the past three years.

In terms of the trailing-12-month levered FCF margin, LI’s 23.51% is 360.2% higher than the 5.11% industry average. Likewise, the stock’s 7.69% trailing-12-month Capex/Sales is 139.2% higher than the industry average of 3.22%.

LI’s total revenues for the second quarter ended June 30, 2023, increased 228.1% year-over-year to RMB28.65 billion ($3.91 billion). Its gross profit rose 232% over the prior-year quarter to RMB6.24 billion ($853.63 million). The company’s non-GAAP income from operations came in at RMB2.04 billion ($279.07 million), compared to a non-GAAP loss from operations of RMB520.80 million ($71.25 million).

Also, its non-GAAP net income stood at RMB2.73 billion ($373.46 million), compared to a non-GAAP net loss of RMB183.40 million ($25.09 million).

Street expects LI’s revenue for the quarter ending September 30, 2023, to increase 245.3% year-over-year to $4.64 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 151.7% year-over-year to $0.34. It surpassed the Street EPS estimates in three of the trailing four quarters.

NIO Inc. (NIO)

Based in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles in China. It offers five- and six-seater electric SUVs and smart electric sedans. The company also offers power solutions, power chargers and destination chargers, power mobile, power map, and One Click for power valet service.

On July 12, 2023, NIO announced that it closed the $738.50 million strategic equity investment from CYVN Investments RSC Ltd, an affiliate of CYVN Holdings L.L.C., an investment vehicle majority owned by the Abu Dhabi Government with a focus on advanced and smart mobility. The NIO and CYVN entities would collaborate strategically in international business and technology cooperation.

NIO’s revenue grew at a CAGR of 70.6% over the past three years. Its total assets grew at a CAGR of 55.7% over the past three years.

In terms of the trailing-12-month Capex/Sales, NIO’s 17.62% is 447.9% higher than the 3.22% industry average.

For the second quarter ended June 30, 2023, NIO’s total revenues fell 14.8% year-over-year to RMB8.77 billion ($1.20 billion). Its adjusted loss from operations widened 132% year-over-year to RMB5.46 billion ($746.93 million). In addition, its adjusted net loss attributable to ordinary shareholders of NIO widened 140.2% year-over-year to RMB5.45 billion ($745.56 million).

Furthermore, its adjusted net loss per share attributable to ordinary shareholders widened 144.8% year-over-year to RMB3.28.

For the quarter ending September 30, 2023, NIO’s revenue is expected to increase 47.2% year-over-year to $2.66 billion.

Should QUALCOMM (QCOM) Downsizing Be a Warning Sign to Investors?

Posted on by The INO.com Team

The extensive chip utilization in diverse industries and the rising inclination toward innovative technologies are projected to propel semiconductor demand. The industry is further bolstered by enticing governmental incentives and investments.

QUALCOMM Incorporated (QCOM), with a market cap of $123.06 billion, specializes in wireless technology development, licensing, and smartphone chip design. The company's key patents pertain to CDMA and OFDMA technologies, pillars of all 3G, 4G, and 5G networks. As the world's principal vendor of wireless chips, it provides top-tier handset manufacturers with cutting-edge processors.

Despite its position, recent news of impending layoffs has raised some concerns. The company predominantly plans staff reductions and other resizing endeavors for the fourth quarter of the fiscal year, which is expected to be completed in the first half of 2024.

QCOM, having a presence in over 12 Chinese cities primarily for its semiconductor and mobile telecommunications businesses, reiterates its steadfast commitment to spearheading advanced technology development within the country. Furthermore, it ensures a supportive transition for its employees affected by restructuring, providing them with substantial redundancy packages.

QCOM's staff reduction strategy in China and Taiwan forms a part of its broader restructuring initiative, intended to navigate through the dwindling consumer demand for smartphones and other gadgets equipped with its technology.

According to Canalys’ figures, the global smartphone market suffered a sixth straight quarterly decline for June 2023. Despite a cautious optimism for potential market recovery, QCOM is feeling the impact of this downturn. This contraction, intensified by escalating competition from Chinese chipmakers, took a toll on the company’s revenue and profit margins in the last quarter.

The layoff news timing coincides with the ongoing trade tensions between the U.S. and China and Beijing's imposition of a partial ban on using iPhones by government personnel. This situation creates additional strain, as QCOM is a significant supplier to Apple, Inc (AAPL). However, the successful introduction of the iPhone 15 in mainland China might help mitigate some of these ordeals.

Moreover, China’s overarching smartphone market is contending with challenges, too. Sales declined by 4% during the second quarter of 2023, marking a record low for second-quarter sales since 2014, as per the market research firm Counterpoint.

Furthermore, QCOM cautioned that the cost-cutting measures will result in restructuring charges, a significant portion of which will be accounted for in its fourth-quarter report. QCOM projects its August sales to range between $8.1 billion and $8.9 billion, a dip from $11.4 billion in the year-ago quarter, while EPS is anticipated to decline between $1.37 and $1.57 from $2.54 during the prior-year quarter. This represents a notable setback for the organization.

Potential Implications of the Impending Layoffs

On the positive side, these drastic steps may enable the company to curtail its operating costs, enhancing profitability and cash flow. This could augment the firm's earnings per share and future dividend payouts. It may also steer QCOM toward concentrating on its principal business and strategic growth areas like 5G technology, automobiles, and the IoT.

Conversely, there may be negative repercussions. These layoffs could tarnish QCOM’s reputation and affect employee morale and customer trust. It may also decelerate the firm's research and development activities, consequently diminishing the potential for innovation in the long run. The company could find itself vulnerable, exposed to legal complications and heightened regulatory scrutiny, particularly in China, where it grapples with anti-trust investigations and patent disputes.

Therefore, the repercussions of these layoffs on shareholders will likely hinge on QCOM's capability to efficiently carry out its restructuring plan and adapt to shifting market conditions. The company's stock prices have been volatile after the layoff announcement, signifying a wave of uncertainty and investors' ambivalent responses.

Nevertheless, within this challenging scenario, it is also crucial to point out a few potential areas of optimism. Here are some additional factors that could potentially influence the QCOM’s course in the upcoming months:

Recent Developments

On September 11, QCOM confirmed a strategic alliance with Apple Inc. (AAPL) to supply its Snapdragon 5G Modem-RF Systems for upcoming smartphone iterations set to launch in 2024, 2025, and 2026. The partnership reaffirms QCOM’s sturdy standing within the industry.

Moreover, on August 4, QCOM joined forces with Robert Bosch GmbH, Infineon Technologies AG, Nordic Semiconductor, and NXP Semiconductors to financially back a German-based company specifically committed to bolstering global adoption of RISC-V.

The joint venture aims to accelerate the development and market introduction of products rooted in RISC-V technology across diverse industries. The widespread acceptance of the RISC-V technology envisages fostering more diversity within the electronic field - diminishing entry obstacles for nascent and smaller enterprises while facilitating greater scalability for well-established firms.

Robust Financials

For the fiscal third quarter ended June 25, 2023, QCOM’s total revenues came in at $8.45 billion, while its Earnings Before Taxes (EBT) stood at $1.76 billion. Its net income and earnings per share stood at $1.80 billion and $1.60, respectively.

For the same quarter, QCOM’s net cash provided by investing activities amounted to $1.74 billion, compared to net cash used by investing activities of $4.88 billion. Moreover, total cash and cash equivalents at the end of the quarter stood at $6.18 billion, up 93.2% year-over-year.

Furthermore, as of June 25, 2023, QCOM’s total current liabilities amounted to $8.46 billion, compared to $11.87 billion as of September 25, 2022.

Attractive Valuation

In terms of forward non-GAAP P/E, QCOM’s 13.23x is 37.8% lower than the 21.28x industry average. Likewise, its forward EV/EBITDA multiple of 9.84 is 28% lower than the industry average of 13.66. Its 11.33x forward EV/EBIT is 36% lower than the 17.71x industry average.

Robust Growth

QCOM’s revenue grew at CAGRs of 24.5% and 11.2% over the past three and five years, respectively. In addition, its levered free cash flow grew at 43.9% and 9.9% CAGRs over the past three and five years, respectively.

High Profitability

QCOM’s trailing-12-month EBITDA and EBIT margin of 34.28% and 29.51% are 274.5% and 553.9% higher than the 9.15% and 4.51% industry averages, respectively. Moreover, its trailing-12-month cash from operations of $8.65 billion is significantly higher than the industry average of $60.08 million.

Growing Institutional Ownership

QCOM’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their QCOM stock holdings.

Institutions hold roughly 73% of QCOM shares. Of the 2,508 institutional holders, 1,111 have increased their positions in the stock. Moreover, 142 institutions have taken new positions (7,940,217 shares).

Price Performance

Even though QCOM’s shares have plunged marginally year-to-date to close the last trading session at $109.19, over the past five days, the stock gained 1.2%.

Wall Street analysts expect the stock to reach $136.30 in the next 12 months, indicating a potential upside of 24.8%. The price target ranges from a low of $100 to a high of $150.

Favorable Analyst Estimates

For the fiscal fourth quarter ending September 2023, analysts expect QCOM revenue and EPS to come at $8.51 billion and $1.90, respectively. Moreover, for the fiscal year ending September 2024, analysts expect QCOM revenue and EPS to surge 5.6% and 10.9% year-over-year to $37.67 billion and $9.19, respectively.

Bottom Line

Despite experiencing a deceleration during the latter half of the preceding year, the semiconductor industry hit an unprecedented milestone in annual sales with a growth of 3.3% year-on-year. While there are hurdles ahead, expert views remain largely optimistic considering the industry’s pervasive applications expansion.

In addition to industry tailwinds, QCOM finds itself poised in an enviable financial space. Optimistic analyst forecasts, compelling valuation metrics, steadfast profitability, and distinctive growth prospects augment this fortitude.

Further solidifying this perspective is QCOM's unwavering commitment to its investors, substantiated by its uninterrupted history of dividend payouts over the past 19 years. It pays a $3.20 per share dividend annually, translating to a 2.92% yield on the current share price. Its four-year average dividend yield is 2.31%. The company’s dividend payouts have grown at a CAGR of 6.9% over the past three years and 5.4% over the past five years.

However, potentially casting a shadow over these optimistic forecasts are QCOM’s planned layoffs, which could influence the company’s performance and stock prices. But the impact largely hinges on its historical performance and future earnings estimates.

How Low Will Stocks Go?

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

SPY – The Fed threw some gasoline on the stock sell off fire last week. With that stocks are exploring new lows with the 200 day moving average in play at 4,195 for the S&P 500 (SPY). Is it time to buy stocks…or run for cover? 43 year investment veteran Steve Reitmeister shares his latest insights including how low he expects stocks to go. Plus information on his top 11 picks for today’s volatile market. Read on below for more…

 

Stocks were floating around in a well-defined trading range coming into the September 20th Fed announcement. Unfortunately, the increased clarity on what they mean by “higher rates for longer” has the market heading to new lows.

This has rattled the cage of some investors evoking questions like:

Is the bull market already over?

How low do we go before stocks bounce again?

We will answer all that and more in this week’s Reitmeister Total Return commentary.

Market Commentary

4,600 on the S&P 500 (SPY) was always too high for this market. Especially true when it was unclear when the Fed would be done tapping the brakes of the economy. Thus, it made sense for investors to take some money off the table in early August leading to a natural pullback.

Next up the Fed made it clearer what “higher rates for longer” meant at their 9/20 press conference. This included the September release of their Summary of Economic Projections which included insight that Fed officials now expect rates to be around 5.1% at the end of 2024…much higher than the previously stated level.

This has led to a massive Risk Off adjustment as it does marginally increase the odds of recession (and bear market). But more succinctly it means that bonds and interest bearing securities have become more attractive relative to stocks thanks to higher yields. Or to put it another way:

Rates Up > Stocks Down

Now let’s pull back to the big picture. Even after this realignment of funds, investors have to appreciate that the risk of recession is still very low. The Fed is simply choosing a path of lightly tapping on the brakes over a longer period of time to increase the odds of soft landing.

This is a better plan than violently slamming on the brakes with MUCH higher rates in the short run which increases the probability of an economic wreck in the long run.

This all shows up loud and clear in how they adjusted their economic forecast for 2024 higher to +1.5% GDP growth. Not stellar when 2.7% is the long term average. However, it sure is better than the 1.1% they previously projected.

Now let’s consider some other GDP indicators.

Goldman Sachs is staying put at 15% odds of recession in the coming year. Note that economists are told to start at 10% probability no matter how glorious the economy looks. So this means their teams sees very little reason for concern.

Next we will check in with the famed GDPNow model from the Atlanta Fed. That is shockingly high at +4.9% for Q3. That is just based on 1 month of data so far and likely will come down a notch when the early October reports are released like ISM Manufacturing and Retail Sales.

Likely the GDPNow model will fall in line with the Blue Chip Economist panel that right now stands at +2.9% for Q3. Last quarter the panel forecast was much closer to the mark.

When you boil it down it is hard to see that the odds of recession are that high. And thus hard to become bearish…and thus hard to see stocks falling much further. Will discuss more about that in the next section…

Price Action & Trading Plan

Moving Averages: 50 Day (yellow), 100 Day (orange), 200 Day (red)

We have been under the 100 day for a few sessions. So, it means that the 200 day moving average @ 4,195 is now in play (about 2% below Thursday’s close).

I didn’t think that was probable a week ago. But the Fed’s updated forecast means that the highly anticipated lowering of rates, and reacceleration for the economy, are a bit further down the road.

It doesn’t end the bull market story. Rather it just delays when it will really show up in improved earnings growth, which is the prime catalyst for higher share prices.

So yes, the odds of testing the 200 day moving average has increased. That is a healthy correction for the overall market after being near 4,600 back in July.

That correction will shake out the complacency that got built up during the overextend 5 month rally from March til August. This creates a healthy reset for stocks bringing them down to a better valuation point that will have investors more readily hitting the buy button once again. My guess is that will be at the 200 day moving average or slightly above.

This new information on the Fed also has me taking back my previous prediction of 4,850 for year end S&P 500 level. That is asking too much from the market at this time.

Rather, I think a touch of Santa Claus rally, plus increased clarity from the Fed at their next 2 meetings, will give investors the confidence to bid stocks back up to 4,500 to 4,600 by year end. And then be primed to make new highs above 5,000 next year.

The key to superior returns is determining the best stocks & ETFs to put into our portfolios to stay a step ahead of the pack. And that is what you will find in the next section…

What To Do Next?

Discover my current portfolio of 7 stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.

Plus I have added 4 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.

This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.

If you are curious to learn more, and want to see these 11 hand selected trades, then please click the link below to get started now.

Steve Reitmeister’s Trading Plan & Top Picks >

Wishing you a world of investment success!


Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com and Editor, Reitmeister Total Return

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

McDonald’s (MCD) Could Be Involved With Another Coffee-Related Lawsuit: Buy or Sell?

Posted on by The INO.com Team

McDonald's Corporation (MCD) finds itself in hot water again as a new civil case was filed on September 14 at the San Francisco Superior Court. An elderly woman named Mable Childress alleged that she suffered severe burns on her stomach, groin, and leg after she spilled hot coffee on herself while drinking due to an improperly attached lid.

The plaintiff also alleged in the lawsuit that the restaurant employees refused to help her. According to Childress’ lawyer, they “didn’t give her the time of day.” The lawsuit alleged that the plaintiff was suffering from physical pains, emotional distress, and other damages. Also, it alleged that the restaurant’s negligence was a “substantial factor” for Childress’ injuries.

Peter Ou, the owner of the MCD drive-thru in San Francisco denied that the store manager and employees refused to help her. He said, “We take every customer complaint seriously and when Childress reported her experience to us later that day, our employees and management team spoke to her within a few minutes and offered assistance.”

“My restaurants have strict food safety protocols in place, including training crew to ensure lids on hot beverages are secure,” he added. He further stated that the company was reviewing this new legal claim in detail.

This latest lawsuit over spilled coffee might remind people of the much-talked-about hot coffee episode nearly thirty years ago where plaintiff Stella Liebeck suffered third-degree burns in her pelvic region when she accidentally spilled coffee on her lap while purchasing at an MCD restaurant. Liebeck had to undergo skin grafting and had to follow it up with two years of medical treatment.

Liebeck wanted $20,000 from MCD to settle the case, but the company refused to pay that amount. Instead, the company offered her $800, which was insufficient to cover her medical expenses. A suit was filed at the U.S. District Court for the District of New Mexico, accusing the company of gross negligence.

The jurors found that MCD’s coffee was 30 to 40 degrees hotter than what was served by other restaurants. The jurors also found that many people had gotten burnt before due to MCD’s hot coffee, but the company did not change its policy of keeping coffee between 180 - 190 degrees Fahrenheit.

According to a jury’s verdict in 1994, the victim was granted $200,000 in compensatory damages for her pain, suffering, and medical costs, but it was later reduced to $160,000 by the trial judge as they found her 20 percent responsible. She was also paid $2.7 million in punitive damages, which was reduced to $480,000. Later, the two warring parties settled for a confidential amount.

Earlier this year, MCD faced a lawsuit after a toddler received second-degree burns from a scalding hot chicken nugget dispensed at a Tamarac, Florida drive-thru restaurant. A Broward County jury found that MCD and franchise owner Upchurch Foods failed to warn or provide reasonable instructions over the harm that the hot McNuggets could possibly do.

The jury awarded the Florida family $800,000 for pain and suffering, disfigurement, mental anguish, inconvenience, and loss of capacity to enjoy life. Out of the $800,000, the jury determined that $400,000 is for the injuries sustained in the past and the rest for the damages that will be sustained in the future.

Going by the company’s history of dealing with similar lawsuits, I don’t see the recent ‘hot coffee’ lawsuit to have a material impact on MCD’s financials. Instead, here’s what could influence MCD’s performance in the upcoming months:

Robust Financials

MCD’s revenues from franchised restaurants increased 11.5% year-over-year to $3.93 billion for the second quarter ended June 30, 2023. Its total revenues increased 13.6% year-over-year to $6.50 billion. The company’s non-GAAP net income increased 22.7% year-over-year to $2.32 billion, and its non-GAAP EPS rose 24.3% year-over-year to $3.17.

Favorable Analyst Estimates

Analysts expect MCD’s EPS for fiscal 2023 and 2024 to increase 14.7% and 7.5% year-over-year to $11.59 and $12.45, respectively. Its fiscal 2023 and 2024 revenues are expected to increase 9.7% and 6.8% year-over-year to $25.42 billion and $27.14 billion, respectively.

High Profitability

In terms of the trailing-12-month gross profit margin, MCD’s 57.45% is 62.1% higher than the 35.45% industry average. Likewise, its 53.79% trailing-12-month EBITDA margin is 388.6% higher than the industry average of 11.01%. Furthermore, the stock’s 8.64% trailing-12-month Capex/Sales is 168.6% higher than the industry average of 3.22%.

Stretched Valuation

In terms of forward EV/EBITDA, MCD’s 17.80x is 91.6% higher than the 9.29x industry average. Likewise, its 9.58x forward EV/Sales is 749% higher than the 1.13x industry average. Its 23.28x forward non-GAAP P/E is 64.6% higher than the 14.15x industry average.

Solid Historical Growth

MCD’s EBIT grew at a CAGR of 15% over the past three years. Its EBITDA grew at a CAGR of 13.2% over the past three years. In addition, its EPS grew at a CAGR of 19.7% in the same time frame.

Bottom Line

MCD is no stranger to lawsuits as it had to pay $800,000 earlier this year due to the McNugget burn lawsuit. Moreover, this is not the first time MCD has faced a lawsuit over hot coffee. In the earlier cases, the victims had received third or second-degree burns, which are considered severe.

However, according to the lawyer of the current hot coffee spill case, the plaintiff wants her medical expenses to be paid for and is not looking for a payday. MCD is highly likely to get fined and will likely be asked by a jury to compensate the victim. This is unlikely to have any effect on MCD’s business prospects.

The company has bold expansion plans, likely to fuel its growth in the upcoming years. Therefore, despite its stretched valuation, it could be wise to buy the stock now, given its high profitability, robust financials, and solid historical growth.

100 Best Stocks for October

Posted on by The INO.com Team

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

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I am referring to our coveted “low priced” stock strategy sporting an average annual return of +57.15%.

And yes, it was profitable during the 2022 bear market putting the S&P 500 (SPY) to shame.

And yes, it has come roaring out of the gate once again in 2023!

To create proven strategies like these, we turned to the same Data Scientist who created our coveted POWR Ratings. We had 3 key requests for this project:

  1. 10 unique stock picking strategies. Something for every investor
  2. 10 stocks per strategy updated daily
  3. MOST IMPORTANT: Provide stellar performance in ALL markets

And boy did he ever deliver!

In the webinar we go over full details on each of the 10 strategies and their market beating results.

No doubt you have heard many other investment experts talk about great results in theory, but come up short in reality.

That is why I came up with…

136,835 Reasons to Pay Attention to What Comes Next

Back in February 2021 I decided to put my money where my mouth was by investing my entire Roth IRA account in 2 of these “black box” stock picking strategies.

Since then, my account has significantly outpaced the market leading to a real life gain of $136,835.

The full proof of that, including screenshots from my Schwab account, are in the presentation.

Even better, I show you the precise methods I used…and how you can easily do the same to enjoy market topping results.

It’s all there in the presentation…so start watching now:

100 Best Stocks for October >

You owe it to yourself to get on the right foot for the rest of the year by watching this valuable presentation now so you can use these winning strategies to outperform in the months ahead.

But Time is Running Out!

So don’t delay, click below to watch now:

100 Best Stocks for October >

Wishing you a world of investment success!


Steve Reitmeister
…but everyone calls me Reity (pronounced “Righty”)
CEO, StockNews.com & Editor, Reitmeister Total Return

SPY shares were trading at $433.56 per share on Thursday afternoon, down $5.08 (-1.16%). Year-to-date, SPY has gained 14.63%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.