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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) will likely benefit from digital efforts, loyalty program and expansion initiatives. Also, focus on strategic partnerships bode well. However, a decline in comps from pre-pandemic levels and inflationary pressures are a concern.

Let’s discuss the factors highlighting why investors should retain the stock for the time being.

Major Growth Drivers

McDonald's has been focusing on digitalization to drive growth. The company is transforming its offerings across drive-thru, takeaway, delivery, curbside pick-up and dine-in with digital enhancements. Despite reopening dining rooms, the company stated that drive-thru sales in its top six markets remain strong compared with pre-pandemic levels. The company noted that in its top six markets, digital sales were over one-third of the company’s system-wide sales in third-quarter 2022. During the quarter, digital sales came in at approximately $7 billion, reflecting a rise of 40% year over year.

McDonald's continues to focus on the loyalty program to drive sales and average checks. It believes the program will help retain existing customers and expand the customer base. During third-quarter 2022, the company witnessed accelerated loyalty adoption in Germany. Also, it witnessed a rise in digital customer frequency in the United States (on a quarter-over-quarter basis) courtesy of the camp McDonald's promotion.

To enhance the delivery experience, the company announced the integration of a new feature where customers can earn loyalty points for orders and pay for delivery within the McDonald's app. The initiative is currently being rolled out in the United States and is also available to customers in the U.K. The company plans to expand this capability to Canada and Australia by 2022-end. The company remains optimistic in this regard and anticipates the initiative to boost delivery sales in the upcoming periods. The company also has long-term strategic partnerships with UberEats, DoorDash, Just Eat Takeaway.com and Deliveroo for delivery purposes. These partnerships provide optimized operational efficiencies and seamless customer experience, paving a path for expanded delivery service offerings.

McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding its presence in existing markets and entering new ones. Its expansion efforts continue to drive performance. Despite unfavorable scenario, the company continues to expand its global footprint. It is planning to open more than 1,800 restaurants globally in 2022, which includes 500 openings in the United States and international operated markets (IOM) segment and 1,300 (including nearly 800 in China) inaugurations in the international developmental licensed (IDL) market. The company expects restaurant growth of nearly 3.5% for 2022.

Concerns

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In the past six months, shares of the company have gained 7.4% compared with the industry’s 13.5% growth. The downside was mainly due to commodity and wage inflation, supply chain challenges and a challenging macro environment. Although overall comps have increased sharply, it is still far behind the pre-pandemic level in a few markets. In third-quarter 2022, comps in the China market were negative. Softening economy and COVID-related government restrictions have hurt comps in China. The company intends to monitor the situation regularly to gauge the impacts of COVID-19.

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 Zacks Retail-Wholesale sector are Tecnoglass Inc. (TGLS - Free Report) , Wingstop Inc. (WING - Free Report) and Chuy's Holdings, Inc. .

Tecnoglass currently sports a Zacks Rank #1. Shares of the company have gained 13.8% in the past year.

The Zacks Consensus Estimate for TGLS’ 2023 sales and EPS suggests growth of 11.2% and 9%, respectively, from the year-ago period’s levels.

Wingstop carries a Zacks Rank #2 (Buy). WING has a long-term earnings growth rate of 12%. Shares of WING have decreased 19.6% in the past year.

The Zacks Consensus Estimate for Wingstop’s 2023 sales and EPS suggests growth of 18.4% and 16.1%, respectively, from the comparable year-ago period’s levels.

Chuy’s Holdings currently carries a Zacks Rank #2. CHUY has a trailing four-quarter earnings surprise of 18.6%, on average. Shares of CHUY have declined 7.1% in the past year.

The Zacks Consensus Estimate for Chuy’s Holdings 2023 sales and EPS suggests growth of 8.9% and 11.2%, respectively, from the corresponding year-ago period’s levels.


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