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McDonald's Stock Gains 19% in 3 Months: More Room to Run?
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McDonald's Corporation (MCD - Free Report) continues to benefit from robust digitalization and expansion efforts and accelerated deployment of Experience of the Future’ (EOTF) restaurants in the United States. The company is also making every effort to drive growth in international markets as well. In the past three months, the company’s shares have gained 18.8%, compared with the industry’s growth of 14.2%. However, the coronavirus pandemic is hurting the company’s traffic. Let’s delve deeper.
Key Growth Drivers
The company has been focusing on drive-thru, delivery & take-away to drive sales amid the pandemic. Notably, prior to the coronavirus 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. The company provides delivery from more than 27,000 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. Further, it partnered with DoorDash.
The company announced that Australia reported positive comps for May and June driven by strong drive-thru and delivery performance. The country has doubled its delivery sales mix to approximately 10% of sales. The company is witnessing increase in delivery and digital transactions per restaurants. It witnessed continued improvement in results throughout the second quarter. As of Jun 30, 2020, most of the company’s restaurants are open globally.
Moreover, 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 markets. The company’s expansion efforts continue to drive performance. Currently, it has more than 39,020 restaurants worldwide. Despite the coronavirus pandemic, the company opened about 150 restaurants through June. McDonald’s remains confident about the opening 400 new restaurants in China this year.
The company is also focusing on conversion of restaurants to EOTF restaurants. In 2018, McDonald’s had completed the conversion of 4,500 restaurants to EOTF restaurants. Moreover, the company had completed the conversion of 2,000 restaurants to EOTF during 2019. For 2020, the company has reduced capital expenditure from $2.4 billion to nearly $1.6 billion. The company will spend nearly half of the amount for the U.S. business, which includes completion of approximately 900 EOTF projects.
Concerns
McDonald’s results in the coming quarters are likely to reflect the impact of the coronavirus outbreak. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due the social distancing protocols.
The company’s comps declined for the second straight quarter after reporting positive comps in the preceding 19 quarters. In the second quarter, global comps declined 23.9%, against a gain of 6.5% in the prior-year quarter. In first-quarter 2020, comps were down 3.4%.
Some better-ranked stocks in the same space include Papa John's International, Inc. (PZZA - Free Report) , El Pollo Loco Holdings, Inc. (LOCO - Free Report) and Jack in the Box Inc. (JACK - Free Report) . Papa John's sports Zacks Rank #1, while El Pollo Loco and Jack in the Box carry a Zacks Rank #2 (Buy).
Papa John's earnings in 2021 are expected to surge 65.2%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
Jack in the Box has a three-five year earnings per share growth rate of 10.6%.
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McDonald's Stock Gains 19% in 3 Months: More Room to Run?
McDonald's Corporation (MCD - Free Report) continues to benefit from robust digitalization and expansion efforts and accelerated deployment of Experience of the Future’ (EOTF) restaurants in the United States. The company is also making every effort to drive growth in international markets as well. In the past three months, the company’s shares have gained 18.8%, compared with the industry’s growth of 14.2%. However, the coronavirus pandemic is hurting the company’s traffic. Let’s delve deeper.
Key Growth Drivers
The company has been focusing on drive-thru, delivery & take-away to drive sales amid the pandemic. Notably, prior to the coronavirus 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. The company provides delivery from more than 27,000 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. Further, it partnered with DoorDash.
The company announced that Australia reported positive comps for May and June driven by strong drive-thru and delivery performance. The country has doubled its delivery sales mix to approximately 10% of sales. The company is witnessing increase in delivery and digital transactions per restaurants. It witnessed continued improvement in results throughout the second quarter. As of Jun 30, 2020, most of the company’s restaurants are open globally.
Moreover, 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 markets. The company’s expansion efforts continue to drive performance. Currently, it has more than 39,020 restaurants worldwide. Despite the coronavirus pandemic, the company opened about 150 restaurants through June. McDonald’s remains confident about the opening 400 new restaurants in China this year.
The company is also focusing on conversion of restaurants to EOTF restaurants. In 2018, McDonald’s had completed the conversion of 4,500 restaurants to EOTF restaurants. Moreover, the company had completed the conversion of 2,000 restaurants to EOTF during 2019. For 2020, the company has reduced capital expenditure from $2.4 billion to nearly $1.6 billion. The company will spend nearly half of the amount for the U.S. business, which includes completion of approximately 900 EOTF projects.
Concerns
McDonald’s results in the coming quarters are likely to reflect the impact of the coronavirus outbreak. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due the social distancing protocols.
The company’s comps declined for the second straight quarter after reporting positive comps in the preceding 19 quarters. In the second quarter, global comps declined 23.9%, against a gain of 6.5% in the prior-year quarter. In first-quarter 2020, comps were down 3.4%.
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 Papa John's International, Inc. (PZZA - Free Report) , El Pollo Loco Holdings, Inc. (LOCO - Free Report) and Jack in the Box Inc. (JACK - Free Report) . Papa John's sports Zacks Rank #1, while El Pollo Loco and Jack in the Box carry a Zacks Rank #2 (Buy).
Papa John's earnings in 2021 are expected to surge 65.2%.
El Pollo Loco has a trailing four-quarter earnings surprise of 94.1%, on average.
Jack in the Box has a three-five year earnings per share growth rate of 10.6%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through Q2 2020, while the S&P 500 gained an impressive +44.0%, five of our strategies returned +50.9%, +93.8%, +122.2%, +153.0%, and even +156.8%.
This outperformance has not just been a recent phenomenon. From 2000 – Q2 2020, while the S&P averaged +5.5% per year, our top strategies averaged up to +51.7% per year.
See their latest picks free >>