Troubles broiling in the U.S. restaurant industry over the past few quarters are known to all by now. Nevertheless, a gradually improving U.S. economy has reinforced consumer confidence and sentiment which is likely to encourage consumers to dine out more and thereby put a check on declining traffic.
Thus, totally shying away from this space is not wise. In fact, there are a number of companies with a decent performance history and strong fundamentals that seem unperturbed, thereby signaling a profitable investment opportunity.
One such company is McDonald’s Corp. MCD that continues to reflect strength in several areas and should make a value addition to your portfolio.
Notably, shares of this burger giant have gained 31.9% year to date compared with 8.5% growth of the industry it belongs to.
Moreover, the Zacks Consensus Estimate for McDonald’s current-year earnings has moved up 0.3%, reflecting eight upward revisions versus one downward, over the last 60 days. All these positive earnings estimate revision testifies to the unwavering confidence that analysts have in the company and substantiate the Zacks Rank #2 (Buy) for the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What Else Makes McDonald’s a Solid Pick?
Earnings Growth & Surprise History: Arguably, nothing is more important than earnings growth as surging profit levels is often an indication of strong prospects (and stock price gains) for the company in question. For the year, the company’s projected EPS growth is 14.3% compared with the industry average of 7.3%.
Moreover, McDonald’s earnings surpassed the Zacks Consensus Estimate consistently over the last 12 consecutive quarters, with an average positive surprise of 7.44% in the trailing four quarters.
Strong Brand Recognition: McDonald’s is the world’s largest fast-food chain, operating over 37,000 restaurants in more than 100 countries. Its offerings have reached the billion-dollar brand status through sustained product innovation and geographic expansion. With an almost 10% share of the global informal-eating-out market, there is ample scope for it to grow in the future as it boasts a scale advantage compared to its peers.
Efforts to Boost Sales: Increasing guest count remains the company’s top priority and it intends to regain customers by focusing on food quality, convenience and value.
On the digital front, McDonald’s is set to launch the option in nearly all 14,000 U.S. restaurants and 6,000 others in the UK, Canada, France, Germany, Australia and China by the end of this year, to better serve customers. Meanwhile, to provide augmented convenience, McDonald’s is increasingly focusing on expanding its delivery service. Also, it is accelerating Experience of the Future (EOTF) deployment in the United States which represents one of the greatest opportunities to build on business momentum, besides driving guest count.
Notably, global comps at McDonald’s have been positive over the last eight consecutive quarters. Such moves are further expected to aid comps and maintain the momentum, going forward.
Low Beta Stock: A stock with beta less than 1 suggests that its price movement is not highly correlated with the market. Since they are less volatile than the market, they are safer bets at the moment. McDonald’s has an impressive beta of 0.69. Therefore adding it to your portfolio will bring down overall beta, thereby reducing its risk.
Despite stiff competition from the likes of The Wendy's Company WEN, Restaurant Brands International Inc.’s QSR Burger King and Chipotle Mexican Grill, Inc. CMG, various sales and digital initiatives undertaken by the company are likely to aid it in transforming itself to a contemporary burger company.
This, in turn, should help McDonald’s in retaining and even escalating its market share and strengthening its competitive position.
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