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McDonald's (MCD) Rides on Robust Delivery, Expansion Efforts

McDonald's Corporation MCD is benefiting from increased focus on drive-thru, delivery & take-away, menu innovation and expansion strategy. However, dismal traffic due to the pandemic continues to hurt the company. In the past three months, the company’s shares have gained 7.5%, compared with the industry’s growth of 8.2%. Let’s delve deeper and find out why investors should retain the stock for now.

Robust Delivery Program to Aid Growth

Amid the ongoing coronavirus pandemic, the company has been focusing on drive-thru, delivery & take-away. Prior to the COVID-19 crisis, drive-thru accounted for about two-thirds of all sales in the United States. Drive-thru now accounts for approximately 90% of sales. The company has more than 25,000 drive-thrus globally. Moreover, McDonald’s continues to roll out mobile order and pay, with a new curbside check-in option. To provide enhanced experience and convenience to customers, McDonald’s is increasingly focusing on delivery. The company provides delivery from more than 30,000 restaurants in above 75 countries.

In order to boost digital offerings across drive thru, takeaway, delivery, curbside pick-up and dine-in categories, the company is currently working on a new digital experience growth engine “MyMcDonald’s”. Notably, this platform will provide customers with tailor-made offers and flexibility in food ordering through channel of their choice. The company expects to launch “MyMcDonald’s” across its top six markets by 2021.

Menu Innovation

The company continues to focus on menu innovation to attract new customers. During third-quarter 2020, it introduced a spicy flavour with regard to the Chicken McNuggets. In October last year, the company unveiled the McCafé Bakery line, offering apple fritter, blueberry muffin, cinnamon roll and its McCafé Coffee. Going forward, McDonald's intends to focus on expanding its chicken offerings by leveraging food-line extensions of customer favorites. During fourth-quarter 2020, it launched new items like bakery line in the United State, and the premium McSpaghetti and signature recipe in France. Moroever, in the fourth quarter, the company included favorite menu items of Latin music icon, J Balvin, and classic holiday characters, including Santa Claus and the Grinch.

Expansion Drive

McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding presence in existing markets and entering new ones. The company’s expansion efforts continue to drive performance. Despite the pandemic, the company opened about 500 restaurants across the market in 2020. In 2021, the company is planning to open more than 1,300 restaurants globally. In 2021, the company anticipates systemwide sales growth (in constant currencies) in the low double digits.

 

Concerns

McDonald’s results in the coming quarters are likely to be impacted by resurgence in coronavirus cases in several parts of the world. Although the company has reopened most of its restaurants, it is likely to witness dismal traffic due the social distancing protocols. Moreover, shutdown of dine-in in several markets will continue to hurt its performance.

Moreover, dismal comps remain a concern. The company’s comps declined for the fourth straight quarter after reporting positive comps in the preceding 19 quarters. In the fourth quarter, global comps declined 1.3% against growth of 5.9% in the prior-year quarter. In third-quarter 2020, comps were down 2.2%.

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 Darden Restaurants, Inc. DRI, Jack in the Box Inc. JACK and Chuy's Holdings, Inc. CHUY, each carrying a Zacks Rank #2 (Buy).

Darden 2021 earnings are expected to rise 26.5%.

Jack in the Box has three-five-year earnings per share growth rate of 17%.

Chuy's Holdings has a trailing four-quarter earnings surprise of 126.5%, on average.

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