McDonald’s Corporation: The Simple Reason to Like McDonald’s Stock
Upside for McDonald’s Stock
McDonald’s Corporation (NYSE:MCD) is adopting ever-different solutions to revive its sales amid tougher global competition. The good news for McDonald’s stock is that it has steadily traded at record-highs in the $115.00–$124.00 range so far this year. Of course, MCD stock has its challenges and the company must constantly innovate to beat market expectations.
Yet sentiment on MCD stock remains bullish. Credit Suisse moved McDonald’s stock from “Neutral” to “Outperform,” setting a target price of between $100.00 and $112.00 last October. In November, Deutsche Bank dittoed that sentiment, but it bet on MCD stock outperforming and going to $128.00.
One of the main bullish factors is the company’s review of its menu lineup. McDonald’s is miles away from being simply a fast food burger joint.
In fact, if Ronald McDonald had a choice, he would eat breakfast all day. CEO Steve Easterbrook has already launched the 24-hour breakfast at 24 U.S. stores. (Source: “McDonald’s is facing a ‘deep depression’ and could be in its ‘final days’,” The Independent, October 18, 2015; http://www.independent.co.uk/news/business/news/mcdonalds-is-facing-a-deep-depression-and-could-be-in-its-final-days-say-us-franchise-owners-a6699056.html.)
Such has been the success of McDonald’s strategy that other chains have struggled to keep up. Sales have sunk at anywhere from Jack in the Box to Taco Bell.
Indeed, the stock price reflects MCD stock’s sales advantage. McDonald’s stock is surging, while its rivals, such as Yum! Brands, Inc. (NYSE:YUM), are sinking. (Source: “How Fast Food Players Are Battling Back Against McDonald’s All Day Breakfast,” Time, February 29, 2016.)
The new menu orientation has caused some problems for McDonald’s franchise owners and staff. One franchisor accused Easterbrook of “paving the way of our defeat.” (Source: “McDonald’s Size Amplifies any menu Changes,” The Wall Street Journal, March 5, 2015; http://www.wsj.com/articles/for-mcdonalds-a-minor-menu-change-requires-extensive-planning-1425564130.)
But, McDonald’s shareholders should be happy. The company had no choice but to face a new type of competition from slightly higher-end restaurant chains, such as Chipotle Mexican Grill, Inc. (NYSE:CMG) or the ever more popular Bojangles Inc (NASDAQ:BOJA) restaurants.
McDonald’s is now launching a full breakfast menu at select locations. The “All Day Breakfast: Bigger Menu” replaces the smaller menu based on muffin sandwiches or biscuits, depending on geography. The chain will test new items such as “McGriddles” in certain areas. The all-day breakfast menu has helped McDonald’s improve sales beyond expectations. (Source: “McDonald’s Expands All Day Breakfast Menu, Taco Bell Adds New Items,” International Business Times, March 10, 2016.) In February, McDonald’s posted a 5.7% revenue increase, the highest quarterly growth for MCD stock of any quarter in about four years. (Source: Ibid.)
