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These reasons are why Wall Street is bullish on McDonald’s

·Reporter, Booking Producer
·2 min read
In this article:
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Wall Street seems to be “lovin” shares of McDonald’s (MCD) as 2020 draws to a close.

Currently, the stock is near the top of its 52-week range, bolstered by a COVID-19 effect that’s rewarded nimble fast-food chains that have adopted quickly to lockdowns — even as independent food and restaurant owners were punished by the crisis.

On Monday, UBS Analyst Dennis Geiger recently upgraded shares of McDonald’s from neutral to buy on Monday, while CFRA Analyst Tuna M. Amobi maintains a buy rating on shares of the fast food stock.

During the third quarter, the Golden Arches posted a beat on both the top and bottom line, but there are a few key reasons McDonald’s is whetting the appetite of Wall Street analysts. The recent menu innovation — which includes the widely anticipated return of the McRib and new bakery items — are boosting sales.

UBS’s Geiger cited “multiple U.S. same-store-sales drivers in place or coming in 2021” that will help drive sales, including a new chicken sandwich expected in March, the return of spicy nuggets in February and a recent refocus on marketing and value around the breakfast menu. He also noted that investors should keep a close eye on the strength of the McRib.

With many companies leveraging mobile orders to spur brand loyalty, there’s some excitement among McDonald’s investors over its new growth strategy. The company is doubling down on three ‘D’s:’ digital, delivery and drive-thru, which will fuel growth and sales, according to Geiger.

Florida, Davenport, McDonald's fast food restaurant, drive-thru window. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images)
Florida, Davenport, McDonald's fast food restaurant, drive-thru window. (Photo by: Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images)

Similarly, CFRA’s Amobi cited her own optimism in digital investments, pointing out significant traction in the drive-thru, delivery and digital channels.”

In the third-quarter earnings call, Kevin Ozan, McDonald's CFO, lauded how the company has pulled in more money from bigger checks and drive through orders.

“In most markets, our drive-thru sales percentage peaked during the second quarter and remains elevated when compared to historical norms,” Ozan said. “This safe and convenient service channel has been especially appealing to customers during the pandemic. Similarly, delivery sales have also increased meaningfully across substantially all of our major markets.”

Yet the success of the Golden Arches underscore how larger companies have been able to weather the COVID-19 pandemic in ways smaller operators have not.

The recent surge in coronavirus cases has led to increasingly anxious calls for more stimulus — and sparked fresh pleas for lawmakers to pass the $120 billion Restaurants Act. That money is not included in the latest bi-partisan stimulus package, which could pass Congress before Christmas.

Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma.


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