McDonald’s stock performed well through much of the Covid-19 pandemic, but has struggled to make headway in recent months, as some investors worry that, as a pandemic beneficiary, trends are turning against the fast-food giant. However Wells Fargo argues that that mindset obscures the ongoing momentum powering its business.
Analyst Jon Tower reiterated a Overweight rating and $250 price target on McDonald’s (ticker: MCD) stock on Monday, noting that while sentiment has clearly turned against the stock—down more than 1% year to date, compared to a 4% gain in the
S&P 500 index
—he thinks that will change quickly in the next few quarters. H expects McDonald’s to “return to the momentum seen pre-Covid and continue to fuel the positive feedback loop with a reinvigorated social-media presence, an increasingly digital relationship with customers, new products, and [a] loyalty [program] in the second half of 2021.”
Tower is upbeat about the strength of the U.S. consumer, warning that investors are underappreciating the potential for ongoing sales gains. He notes McDonald’s own track record shows that with catalysts in place, investments in the business, and savvy leadership, the company can deliver a multiyear period of domestic same-store-sales growth, as it did from 2006 to 2011. Yet that’s not reflected in its current valuation.
While some investors worry that McDonald’s faces difficult comparisons ahead, Tower is more sanguine about 2021, given the company has upped its digital presence and advertising, is introducing a new chicken sandwich, and refining its MyMcDonald’s rewards program. He thinks the company can deliver 12% comparable sales growth in the first quarter, 3% ahead of consensus, and writes that the “last time McDonald’s leaned into a similar positive feedback loop, it grew US same-store sales at a 5% compound annual growth rate for 10 years, and drove consistent beats versus expectations.”
In addition, he notes that unlike the last powerful cycle that began in 2006, McDonald’s has a much more robust online ecosystem and omnichannel platform, which bolster his confidence further.
McDonald’s stock is nosing ahead 0.1% to $212.50 in recent trading. The shares wavered after the company reported mixed fourth-quarter results in late January.
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