We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Here's Why Investors Must Hold McDonald's (MCD) Stock for Now
Read MoreHide Full Article
McDonald's Corporation (MCD - Free Report) is benefiting from increasing comparable sales on the back of its focus on loyalty programs, expansion efforts and affordable menu offerings.
The Zacks Consensus Estimate for this current Zacks Rank #3 (Hold) company’s 2024 earnings per share is pegged at $12.17, depicting 1.9% growth from the prior year’s reported levels. MCD delivered a trailing four-quarter earnings surprise of 6.4%, on average. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and the chances of an outperformance in the near term.
Shares of MCD have dwindled 7.8% in the year-to-date period compared with the Zacks Retail - Restaurants industry’s 2.9% decline. Over the past month, the stock has demonstrated resilience, showing a modest 1% improvement.
The company’s prospects are hindered by ongoing inflationary pressures, especially commodity and labor inflation. Also, the negative impact of geopolitical tension in the Middle East market is an additional headwind.
Image Source: Zacks Investment Research
Let’s delve deeper and analyze the factors.
What Makes the Stock Attractive
Loyalty Program Bodes Well: McDonald's continuously seeks opportunities to enhance its top-tier loyalty program. Upon the launch of its loyalty program, the company has been able to transform its offerings across drive-thru, takeaway, delivery, curbside pick-up and dine-in. The program has not only helped in retaining the existing customers but also in expanding the customer base. During the first quarter 2024, the company declared loyalty system-wide sales of more than $6 billion and approximately $25 billion in the trailing 12-month period.
Also, during the quarter, MCD revealed its expectation to deploy “Ready on Arrival”, which is a digital enhancement initiative in the United States, to boost its loyalty program participants and encourage customers to avail the digital platform. This initiative is expected to be launched across the top six markets by 2025-end. Given a rise in digital adoption, the company is optimistic about reaching 90-day active users to 250 million and $45 billion in annual loyalty system-wide sales by 2027.
Footprint Expansion Plans: Being a globally operating fast-food chain, McDonald's is always considering its investment opportunities regarding the expansion to new as well as existing markets. Despite unfavorable global economic scenarios, the company continues to expand its global footprint, which can be evidenced by the opening of its 6,000th restaurant in China during the first quarter of 2024.
The company is planning to open more than 2,100 new restaurants globally in 2024, including 500 openings in the United States and IOM segment and 1,600 (including nearly 1000 in China) inaugurations in the IDL market. The new unit growth aim showcases about 4% contribution to new unit growth (net of closures). Also, the company expects net restaurant unit expansion to contribute nearly 2% to 2024 systemwide sales growth. It targets to open 50,000 restaurants by 2027.
Budget Menu Offerings: Apart from diversifying its menu items or adding new ones, MCD focuses on offering pocket-friendly menu items. This strategic move is undertaken after consideration of its customer’s demand patterns and the ongoing macroeconomic uncertainties. The company aims to deliver scrumptious meals at affordable pricing, thus gaining the confidence of its customer base.
During the first quarter of 2024 earnings call, the company declared high returns from its McSmart menu in Germany, reporting strong performance with record units sold. The McSmart value menu has been now been established in France and is driving progress in the market’s business trends. Furthermore, McDonald’s’ Everyday Value menu continued to drive results during the quarter in markets including Spain.
Factors Hindering Growth
High-Cost Environment: McDonald’s is facing headwinds in the form of increased inflationary pressures and this scenario is expected to continue for some time. During the first quarter, McDonald’s company-operated restaurant expenses were $2.04 billion, up 6% from $1.92 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. It expects commodity and food and paper inflation to be at the higher end in 2024. Also, it expects labor inflation to be in the high single digits.
Key Picks
Here are some better-ranked stocks from the Zacks Retail-Wholesale sector.
WING has a trailing four-quarter earnings surprise of 21.4%, on average. The stock has risen 90.6% in the past year. The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests growth of 27.5% and 36.7%, respectively, from the year-ago period’s levels.
PDD Holdings Inc. (PDD - Free Report) currently sports a Zacks Rank of 1. PDD has a trailing four-quarter earnings surprise of 39.1%, on average. The stock has hiked 132.8% in the past year.
The consensus estimate for PDD’s 2024 sales and EPS indicates a 49.8% and a 29.1% rise, respectively, from the year-ago period’s levels.
The Gap, Inc. (GPS - Free Report) currently sports a Zacks Rank of 1. GPS has a trailing four-quarter earnings surprise of 180.9%, on average. The stock has surged 168.3% in the past year.
The Zacks Consensus Estimate for GPS’ fiscal 2024 sales and EPS suggests a decline of 0.3% and 4.2%, respectively, from the year-ago period’s levels.
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Here's Why Investors Must Hold McDonald's (MCD) Stock for Now
McDonald's Corporation (MCD - Free Report) is benefiting from increasing comparable sales on the back of its focus on loyalty programs, expansion efforts and affordable menu offerings.
The Zacks Consensus Estimate for this current Zacks Rank #3 (Hold) company’s 2024 earnings per share is pegged at $12.17, depicting 1.9% growth from the prior year’s reported levels. MCD delivered a trailing four-quarter earnings surprise of 6.4%, on average. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and the chances of an outperformance in the near term.
Shares of MCD have dwindled 7.8% in the year-to-date period compared with the Zacks Retail - Restaurants industry’s 2.9% decline. Over the past month, the stock has demonstrated resilience, showing a modest 1% improvement.
The company’s prospects are hindered by ongoing inflationary pressures, especially commodity and labor inflation. Also, the negative impact of geopolitical tension in the Middle East market is an additional headwind.
Image Source: Zacks Investment Research
Let’s delve deeper and analyze the factors.
What Makes the Stock Attractive
Loyalty Program Bodes Well: McDonald's continuously seeks opportunities to enhance its top-tier loyalty program. Upon the launch of its loyalty program, the company has been able to transform its offerings across drive-thru, takeaway, delivery, curbside pick-up and dine-in. The program has not only helped in retaining the existing customers but also in expanding the customer base. During the first quarter 2024, the company declared loyalty system-wide sales of more than $6 billion and approximately $25 billion in the trailing 12-month period.
Also, during the quarter, MCD revealed its expectation to deploy “Ready on Arrival”, which is a digital enhancement initiative in the United States, to boost its loyalty program participants and encourage customers to avail the digital platform. This initiative is expected to be launched across the top six markets by 2025-end. Given a rise in digital adoption, the company is optimistic about reaching 90-day active users to 250 million and $45 billion in annual loyalty system-wide sales by 2027.
Footprint Expansion Plans: Being a globally operating fast-food chain, McDonald's is always considering its investment opportunities regarding the expansion to new as well as existing markets. Despite unfavorable global economic scenarios, the company continues to expand its global footprint, which can be evidenced by the opening of its 6,000th restaurant in China during the first quarter of 2024.
The company is planning to open more than 2,100 new restaurants globally in 2024, including 500 openings in the United States and IOM segment and 1,600 (including nearly 1000 in China) inaugurations in the IDL market. The new unit growth aim showcases about 4% contribution to new unit growth (net of closures). Also, the company expects net restaurant unit expansion to contribute nearly 2% to 2024 systemwide sales growth. It targets to open 50,000 restaurants by 2027.
Budget Menu Offerings: Apart from diversifying its menu items or adding new ones, MCD focuses on offering pocket-friendly menu items. This strategic move is undertaken after consideration of its customer’s demand patterns and the ongoing macroeconomic uncertainties. The company aims to deliver scrumptious meals at affordable pricing, thus gaining the confidence of its customer base.
During the first quarter of 2024 earnings call, the company declared high returns from its McSmart menu in Germany, reporting strong performance with record units sold. The McSmart value menu has been now been established in France and is driving progress in the market’s business trends. Furthermore, McDonald’s’ Everyday Value menu continued to drive results during the quarter in markets including Spain.
Factors Hindering Growth
High-Cost Environment: McDonald’s is facing headwinds in the form of increased inflationary pressures and this scenario is expected to continue for some time. During the first quarter, McDonald’s company-operated restaurant expenses were $2.04 billion, up 6% from $1.92 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. It expects commodity and food and paper inflation to be at the higher end in 2024. Also, it expects labor inflation to be in the high single digits.
Key Picks
Here are some better-ranked stocks from the Zacks Retail-Wholesale sector.
Wingstop Inc. (WING - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
WING has a trailing four-quarter earnings surprise of 21.4%, on average. The stock has risen 90.6% in the past year. The Zacks Consensus Estimate for WING’s 2024 sales and earnings per share (EPS) suggests growth of 27.5% and 36.7%, respectively, from the year-ago period’s levels.
PDD Holdings Inc. (PDD - Free Report) currently sports a Zacks Rank of 1. PDD has a trailing four-quarter earnings surprise of 39.1%, on average. The stock has hiked 132.8% in the past year.
The consensus estimate for PDD’s 2024 sales and EPS indicates a 49.8% and a 29.1% rise, respectively, from the year-ago period’s levels.
The Gap, Inc. (GPS - Free Report) currently sports a Zacks Rank of 1. GPS has a trailing four-quarter earnings surprise of 180.9%, on average. The stock has surged 168.3% in the past year.
The Zacks Consensus Estimate for GPS’ fiscal 2024 sales and EPS suggests a decline of 0.3% and 4.2%, respectively, from the year-ago period’s levels.