Is McDonald’s Corporation (NYSE:MCD) finished? To borrow from one of the greatest writers in American literature, the reports of McDonald’s death have been greatly exaggerated.
Sure, sales were down last year and MCD stock has dipped, but don’t count out the big guy yet.
Although McDonald’s has been wandering in the corporate wilderness the past few quarters, there are a few beacons of light shining. Following are some reasons I believe MCD stock could make a comeback.
MCD’s New CEO Is the King of Turnarounds
One indicator MCD is righting the ship is that it put the CEO title on Steve Easterbrook. Although Easterbrook is an MCD insider, he’s only the second non-American to man the post and has a reputation for being a reformer after turning around the company’s U.K. operations.
You might be surprised to learn that MCD in Great Britain serves organic milk, carrot sticks and uses healthier oil for its French fries. That’s at least in part the work of Easterbrook — and MCD sales in Great Britain have seen an uptick under his leadership.
Whereas former CEO Don Thompson was focused on convincing people that McDonald’s made good food, Easterbrook has decided to actually change the food. In the past, MCD offered what appeared to be healthier fare, but the ingredients may have been less than nutritious.
MCD: Healthier Ingredients and a New Image
McDonald’s food has long been considered a guilty pleasure — food that tastes good but isn’t good for you. If MCD can convince health-conscious millennials and others that its food not only tastes good but is nutritious, it may turn things around.
Later this year, MCD will begin using milk from cows raised without the artificial growth hormone rBST. And consider that within two years MCD will only use chickens raised without antibiotics.
These shifts are big not only in terms of the company’s actual product line but for the company’s image.
MCD realizes it’s fallen behind in today’s connected environment and has lost its cachet among millennials, so it’s taking steps to remedy this. Case in point: MCD for the first time became a major sponsor at SXSW, a popular festival that’s a bellwether for all things cool.
MCD is also working on a mobile app that will allow customers to order via their smartphones. The app is slated to debut in certain markets later this year. If you’re questioning the logic behind a fast-food chain using an app for orders, just think of the marketing opportunities.
I’m not saying these things in and of themselves are enough to deliver MCD from the wolves, but they show the company knows it has an image problem and is working to overcome it.
MCD: A Dividend Aristocrat at a Bargain Price
Say what you will about McDonald’s slumping sales, MCD stock could be considered a bargain compared to its competitors. MCD trades at 20 times trailing earnings and 18 times next year’s estimates.
For Wendys Co (NASDAQ:WEN) the numbers are 35 and 30, while Restaurant Brands International Inc (NYSE:QSR) trades at 31 times next year’s estimates. In addition, MCD offers a dividend with a 3.5% yield. WEN’s yield is 2% and QSR’s 1%.
Bottom Line
It’s undeniable that MCD is going through a rough patch, but the company has been through rough patches before. If McDonald’s finds a way to use technology to its advantage and offer customers quality food at bargain prices, the company could find its way again.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
