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Here's Why You Should Retain McDonald's (MCD) Stock Now

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McDonald's Corporation (MCD - Free Report) is likely to benefit from robust drive-thru and delivery sales, menu innovation, expansion efforts and strong brand recognition. However, dismal traffic and comps remain a concern. The company’s shares have gained 7.6% year to date, compared with the industry’s rally of 13.4%. Let us delve deeper and analyze the factors as to why investors should hold on to the stock for the time being.

Growth Drivers

Amid the coronavirus pandemic the company has been focusing on drive-thru, delivery & take-away. Prior to the outbreak, drive-thru accounted for about two-thirds of all sales in the United States. Drive-thru now accounts for approximately 90% of sales. Moreover, McDonald’s continues to roll out mobile order and pay, with a new curbside check-in option. To provide enhanced experience and convenience to customers, McDonald’s has been increasingly focusing on delivery. The company provides delivery from more than 28,000 restaurants in above 75 countries. In third-quarter 2019, it partnered with Grubhub for the rollout of McDelivery to nearly 500 restaurants in the NYC and Tri-State area. It also partnered with DoorDash.

During third-quarter 2020, strong drive-thru and delivery sales got reflected in Australia sales despite restricted operating conditions due to a rise in COVID-19 cases. Notably, majority of the orders came through digital channels such as mobile app and self-order kiosks. Also, solid comps were witnessed in Japan. As of Sep 30, 2020, most of the company’s restaurants were open globally.

Moreover, in an effort to attract customers, the company continues to focus menu innovation. During the third quarter, it introduced a spicy flavour with regard to the Chicken McNuggets. In October, the company unveiled the McCafé Bakery line, offering apple fritter, blueberry muffin, cinnamon roll and its McCafé Coffee. Going forward, McDonald's is committed to expanding its chicken offerings by leveraging food-line extensions of customer favorites. To this end, the company plans to introduce Crispy Chicken Sandwich in the United States in early 2021. It also intends to work on operational and formulation changes to improve the taste of its burgers.

Meanwhile, McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding presence in existing markets and entering new markets. The company’s expansion efforts continue to drive performance. Currently, it has roughly 39,096 restaurants worldwide. Despite the pandemic, the company opened about 300 restaurants in China through September. It is also confident about opening 400 restaurants in China this year.

 

Concerns

McDonald’s results in the coming quarters are likely to be impacted by the coronavirus outbreak. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due the social distancing protocols.

Dismal comps over the past few quarters remain a major concern. The company’s comps declined for the third straight quarter after reporting positive comps in the preceding 19 quarters. In the third quarter, global comps declined 2.2% against a gain of 5.9% in the prior-year quarter. In second-quarter 2020, comps were down 23.9%.

Zacks Rank & Key Picks

McDonald’s currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Jack in the Box Inc. (JACK - Free Report) , Ruth's Hospitality Group, Inc. (RUTH - Free Report) and FAT Brands Inc. (FAT - Free Report) , each carrying a Zacks Rank #2 (Buy).

Jack in the Box has a three-five year earnings per share growth rate of 10.6%.

Ruth's Hospitality and FAT Brands’ earnings for 2021 are expected to surge 264.6% and 127%, respectively.

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