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McDonald's (MCD) Gains From Innovation & Expansion Efforts

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McDonald's Corporation (MCD - Free Report) has been registering solid comps growth given its focus on menu innovation, pricing strategies, loyalty programs, increased digitalization and strong operating performance approach.

The company has been navigating various macroeconomic woes like COVID-related restrictions, global political restrictions, Russia-Ukraine war along with inflationary cost pressures well, by undertaking prudent initiatives to drive growth in the domestic as well as international markets. Its focus on expansion efforts and loyalty program is commendable.

This Zacks Rank #2 (Buy) stock has a long-term earnings growth rate of 8.2%, which highlights its inherent strength. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MCD’s shares have risen 7.4% in the past year, outperforming the Zacks Retail-Restaurants industry’s growth of 6%.

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Image Source: Zacks Investment Research

The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate of $10.45 for 2023 has increased from $10.44. The Zacks Consensus Estimate for 2023 earnings of $10.45 per share implies 5.3% year-over-year growth.

Driving Factors

The company’s initiative of innovating the menu and strategic pricing has increased guest count, resulting in increased sales in the United States. During the second quarter of 2022, the company expanded its coffee business by launching Australiano coffee in Australia and received positive feedback. Also, the company’s initiative of implementing enhanced cooking procedures and rolling out new buns paved the path for solid customer feedback and incremental sales following their launch in Spain.

In third-quarter 2022, global comps advanced 9.5%. This marked the seventh consecutive quarter of comps growth. In the third quarter, comps in the United States, international operated markets (IOM) and international developmental licensed (IDL) segment rose 6.1%, 8.5% and 16.7%, respectively. Japan and Latin America posted robust comps growth. The company reported comps growth for the 28th straight quarter in Japan.

The comparable sales of the company increased due to efficient and strong operating performance in the internationally operated markets of Germany, France, and Australia. Comparable sales in Brazil and Japan added to its top line.

Meanwhile, robust digitalization is helping this Oak Brook, IL-based leading fast-food chain to generate more sales in the global markets. With the rollout of self-order kiosks, digital menu boards, table service, and the mobile app, customers are offered more choices and flexibility as the company progresses toward its Experience of the Future initiative, which is based on adding technology to its eateries.

Importantly, the company’s loyalty program has not only helped in retaining the existing customers but also in expanding the customer base. The company has already introduced a loyalty program in more than 50 markets, including the United States, Germany, Canada, U.K. and Australia.

MCD’s expansion efforts also continue to drive performance. Despite the 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 IOM segment and 1,300 (including nearly 800 in China) inaugurations in the IDL market. The company expects restaurant growth of nearly 3.5% in 2022.

Other Key Picks

Some other top-ranked stocks in the Zacks Retail-Wholesale sector are MercadoLibre, Inc. (MELI - Free Report) , Casey's General Stores, Inc. (CASY - Free Report) and Expedia Group, Inc. (EXPE - Free Report) .

MercadoLibre currently has a Zacks Rank #1. MELI’s stock has increased 47.7% in the past six-month period.

The Zacks Consensus Estimate for MELI’s 2023 sales and earnings per share (EPS) indicates growth of 19.7% and 80.7%, respectively.

Casey's General Stores currently has a Zacks Rank #1. CASY has a trailing four-quarter earnings surprise of 7.2%. The shares of the company have rallied 21.9% in the past year.

The Zacks Consensus Estimate for CASY’s fiscal 2023 sales and earnings indicates a rise of 23.1% and 18.4%, respectively, from the year-ago period’s estimated levels.

Expedia carries a Zacks Rank #1. EXPE has a long-term earnings growth rate of 14%. The stock has risen 10.8% in the past three-month period.

The Zacks Consensus Estimate for EXPE’s 2023 sales and EPS indicates growth of 9.4% and 20.3%, respectively, from the year-ago period’s expected levels.

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