McDonald’s earnings: Improvements made during COVID-19 in 2020 will bolster 2021

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McDonald’s earnings: Improvements made during COVID-19 in 2020 will bolster 2021


All of the digital and menu advancements that McDonald’s Corp.
MCD,
+0.33%

made during the COVID-19 pandemic in 2020 should bolster 2021 results, analysts say in the lead-up to the fast-food giant’s fourth-quarter earnings announcement, scheduled for Thursday before the opening bell.

Fast-food chains have ramped up capabilities such as mobile ordering to give customers a low-contact way to eat out while many dining rooms are closed to stop the spread of coronavirus.

McDonald’s is also being recognized for using technology for
more effective marketing, for instance offering deals for customers who order
on the app.

“In 2020, McDonald’s leaned harder into digital media and found culturally relevant ways to highlight its brand on TV and social media,” wrote KeyBanc Capital Markets analysts led by Eric Gonazalez.

Analysts say mobile ordering excluding delivery has more than tripled since the start of the pandemic.

“In 2021, we expect McDonald’s to continue to innovate
(without adding complexity) and find effective ways to drive awareness of its
core menu, while also leveraging its newly developed technology capabilities.”

Analysts have previously highlighted McDonald’s
collaborations with musical artists like Travis Scott and J Blavin for meal
deals that relied heavily on app use.

See: McDonald’s basking in 2021 analyst optimism, while some analysts see rough road ahead for pizza chains

McDonald’s has also announced that a new chicken sandwich is coming. And KeyBanc thinks the McRib relaunch in December boosted the burger giant’s numbers.

KeyBanc is also anticipating the return of Spicy Chicken McNuggets, which will be back on the menu on Feb. 1.

“McDonald’s remains among our favorite names in 2021—not
just because its off-premise capabilities allow it to weather the pandemic
better than most, but also because of the way it has positioned itself before,
during, and likely after the crisis,” KeyBanc said.

The company’s technology investments and recent operational
improvements (e.g., drive-thru speed/limited menu) should pay dividends long
after the pandemic subsides.

Read: McDonald’s, Shake Shack among the restaurant chains kicking off 2021 with new menu additions

KeyBanc rates McDonald’s stock overweight with a $235 price
target.

“Fourth-quarter profits should continue to face challenges
as markets remain impacted by jurisdictional shutdowns, and the company focuses
on go-forward investments along with still elevated COVID-related costs, while
understanding there is the potential for greater operational efficiencies,
through drive-thru and closed dining room productivity,” wrote MKM Partners in
a note.

Analysts note “choppiness” in same-store sales trends as restaurants manage coronavirus regulations on dining room openings. And MKM says shutdowns in international markets could be deleterious to results.

MKM rates McDonald’s stock buy with a $255 price target.

McDonald’s has an average overweight stock rating and
average target price of $241.89, according to 36 analysts polled by FactSet.

Here are some other things to look for when McDonald’s reports its quarterly results:

Earnings: The FactSet consensus is for earnings per share of $1.77, down from $1.97 last year.

Estimize, which crowdsources estimates from sell-side and
buy-side analysts, hedge-fund managers, executives, academics and others,
is forecasting EPS of $1.84.

Revenue: The FactSet consensus is for revenue of $5.36 billion, up slightly from $5.35 billion last year.

Estimize forecasts revenue of $5.40 billion.

McDonald’s has beaten the FactSet revenue consensus the last
four quarters.

Stock price: McDonald’s shares are down 4.5% over the last three months, but have gained 1.4% over the past year.

The Dow Jones Industrial Average is up 6.8% for the last 12 months.

Watch: 3 sectors to watch beyond the election

Other items:

UBS analysts say large restaurant chains are in a better recovery position in 2021. There have been 110,000 restaurant closures due to the coronavirus, according to the National Restaurant Association, and large restaurant companies stand to gain from those losses.

“Drive-thru, delivery, and broader off-premise gains could
prove more sustainable than not, supporting average unit volume (AUV) growth,”
analysts led by Dennis Geiger wrote. “Larger chains with scale, new products,
and marketing support are best positioned to further increase share.”

McDonald’s is one of UBS’ top picks. UBS rates McDonald’s stock buy with a $240 price target.

Don’t miss: Life after the COVID-19 vaccine: Americans won’t rush back to restaurants and ballgames — or public transportation

Franchisees are excited for the new chicken sandwich launch. “Chick-fil-A is big here, so we really welcome the chicken sandwich,” said one franchisee respondent to the latest Kalinowski Equity Research survey of McDonald’s franchisees.

A number of franchisees are also optimistic about the early 2021 numbers in comparison to a year ago.

“Up against the beginning of the pandemic, we should rock
and roll,” said another franchisee.

However, franchisees expressed frustration about their
relationship with McDonald’s corporate.

“Ignore the directions of inexperienced and incompetent
corporate employees and upper management,” said one franchisee. “Support
operator bodies who are trying to represent the owners against a greedy
corporation that does not value the owners or our legacy.”

“Going to resist all of management’s initiatives,” said
another.

Kalinowki rates McDonald’s stock buy with a $273 price
target.



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