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Here's Why Investors Should Retain McDonald's (MCD) Stock Now
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McDonald's Corporation (MCD - Free Report) is likely to benefit from strong comps growth, solid digital adoption and menu innovation. Also, the focus on pricing and Monopoly promotions bodes well. However, a challenging macro environment is a concern.
Let’s discuss the factors that highlight why investors should retain the stock for the time being.
Major Growth Drivers
McDonald's continues to impress investors with robust comps growth. In fourth-quarter 2023, global comps increased 3.4% compared with a rise of 12.6% reported in the prior-year quarter. The upside was backed by the effective implementation of the Accelerating the Arches strategy. In the fourth quarter, comps in the United States, international operated markets and international developmental licensed segment rose 4.3%, 4.4% and 0.7%, respectively. The company gained from a menu price increase and effective marketing campaigns. This and the continued digital and delivery growth contributed to the upside. In 2024, the company expects the metric to align with historical averages of around 3% to 4% growth in the U.S. and international operated market segments.
During the fourth quarter of 2023, McDonald's U.K. enhanced its reputation for providing quality food at great value while increasing customer loyalty. The company initiated Festive Wins, an interactive in-app promotion, during the holiday season, attracting 4 million active monthly users. In Australia, the 30-days, 30-deals campaign on MyMacca's app boosted engagement and loyalty membership.
The company noted benefits from reasonable pricing and Monopoly promotions, particularly in Canada, Germany and France. It achieved impressive customer engagement with more than 150 million 90-day active members and surpassed $20 billion in annual loyalty system-wide sales in 2023. With increasing digital adoption, McDonald's expects the initiatives to drive sales and average checks, aiming for 250 million active users and $45 billion in annual loyalty system-wide sales by 2027.
MCD aims to enhance its core menu offerings to drive growth. During the fourth quarter of 2023, the company reintroduced the McCrispy chicken sandwich in Germany and reported solid sales regarding the same. In the U.K., the company unveiled McCrispy Smokehouse as a limited-time offering. The company is steadfast in its commitment to providing cost-effective options. During the fourth quarter, the company initiated McMuffin and hot coffee pairing in Canada, providing an economical bundle during a pivotal day part and contributing to increased market share in breakfast. In the U.K., the company expanded its Saver Meal deals to include smaller bundles during the morning hours, catering to budget-conscious consumers. We believe that the strengthening of the core menu and solid marketing are likely to pave the path for additional growth in the upcoming periods.
Concerns
Image Source: Zacks Investment Research
In the past year, shares of the company have gained 4.6% compared with the Retail - Restaurants industry’s 7.7% growth. A challenging macro environment mainly caused the downside.
The company is persistently shouldering higher expenses, which have been detrimental to margins. During fourth-quarter 2023, McDonald’s company-operated restaurant expenses came in at $2.1 billion compared with $1.9 billion reported in the prior-year quarter. A challenging macro environment, including rising interest rates, remains headwinds. Given the ongoing inflationary headwinds, the company expects the operating margin to remain pressurized in the near term. Internationally, the company expects commodity inflation to be in the low single-digit range. Wage inflation is likely to lie in the low to mid-single-digit range.
Zacks Rank & Key Picks
McDonald's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Retail-Wholesale sector include:
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. (TXRH - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 44.5% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. SHAK’s shares have surged 90.7% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.
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Here's Why Investors Should Retain McDonald's (MCD) Stock Now
McDonald's Corporation (MCD - Free Report) is likely to benefit from strong comps growth, solid digital adoption and menu innovation. Also, the focus on pricing and Monopoly promotions bodes well. However, a challenging macro environment is a concern.
Let’s discuss the factors that highlight why investors should retain the stock for the time being.
Major Growth Drivers
McDonald's continues to impress investors with robust comps growth. In fourth-quarter 2023, global comps increased 3.4% compared with a rise of 12.6% reported in the prior-year quarter. The upside was backed by the effective implementation of the Accelerating the Arches strategy. In the fourth quarter, comps in the United States, international operated markets and international developmental licensed segment rose 4.3%, 4.4% and 0.7%, respectively. The company gained from a menu price increase and effective marketing campaigns. This and the continued digital and delivery growth contributed to the upside. In 2024, the company expects the metric to align with historical averages of around 3% to 4% growth in the U.S. and international operated market segments.
During the fourth quarter of 2023, McDonald's U.K. enhanced its reputation for providing quality food at great value while increasing customer loyalty. The company initiated Festive Wins, an interactive in-app promotion, during the holiday season, attracting 4 million active monthly users. In Australia, the 30-days, 30-deals campaign on MyMacca's app boosted engagement and loyalty membership.
The company noted benefits from reasonable pricing and Monopoly promotions, particularly in Canada, Germany and France. It achieved impressive customer engagement with more than 150 million 90-day active members and surpassed $20 billion in annual loyalty system-wide sales in 2023. With increasing digital adoption, McDonald's expects the initiatives to drive sales and average checks, aiming for 250 million active users and $45 billion in annual loyalty system-wide sales by 2027.
MCD aims to enhance its core menu offerings to drive growth. During the fourth quarter of 2023, the company reintroduced the McCrispy chicken sandwich in Germany and reported solid sales regarding the same. In the U.K., the company unveiled McCrispy Smokehouse as a limited-time offering. The company is steadfast in its commitment to providing cost-effective options. During the fourth quarter, the company initiated McMuffin and hot coffee pairing in Canada, providing an economical bundle during a pivotal day part and contributing to increased market share in breakfast. In the U.K., the company expanded its Saver Meal deals to include smaller bundles during the morning hours, catering to budget-conscious consumers. We believe that the strengthening of the core menu and solid marketing are likely to pave the path for additional growth in the upcoming periods.
Concerns
Image Source: Zacks Investment Research
In the past year, shares of the company have gained 4.6% compared with the Retail - Restaurants industry’s 7.7% growth. A challenging macro environment mainly caused the downside.
The company is persistently shouldering higher expenses, which have been detrimental to margins. During fourth-quarter 2023, McDonald’s company-operated restaurant expenses came in at $2.1 billion compared with $1.9 billion reported in the prior-year quarter. A challenging macro environment, including rising interest rates, remains headwinds. Given the ongoing inflationary headwinds, the company expects the operating margin to remain pressurized in the near term. Internationally, the company expects commodity inflation to be in the low single-digit range. Wage inflation is likely to lie in the low to mid-single-digit range.
Zacks Rank & Key Picks
McDonald's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Retail-Wholesale sector include:
Brinker International, Inc. (EAT - Free Report) carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 212.7% on average. Shares of EAT have surged 25.6% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 4.9% and 30.4% growth, respectively, from the year-ago period’s levels.
Texas Roadhouse, Inc. (TXRH - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter negative earnings surprise of 3.9%, on average. The stock has gained 44.5% in the past year.
The Zacks Consensus Estimate for TXRH’s 2024 sales and EPS suggests rises of 14.1% and 25.8%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) carries a Zacks Rank #2. It has a trailing four-quarter earnings surprise of 92.6%, on average. SHAK’s shares have surged 90.7% in the past year.
The Zacks Consensus Estimate for SHAK’s 2024 sales and EPS indicates 14.6% and 91.9% growth, respectively, from the year-ago period’s levels.