It looks like all-day breakfast is pulling McDonald’s Corporation (MCD) out of a long slump, and that means MCD stock has more upside ahead.
True, we’ll have to wait for the release of fourth-quarter earnings next year, but an early survey by market researcher NPD Group Inc. suggests it’s a hit.
MCD launched the all-day breakfast menu about two months ago as part of a turnaround plan that is just beginning to turn.
Competition from so-called fast casual chains like Chipotle Mexican Grill (CMG), Panera Bread (PNRA) and Shake Shack (SHAK) — which are perceived to be be healthier than MCD — are stealing market share.
MCD is also being hit by a rejuvenated Burger King and other fast-food chains.
Happily for MCD stock, the apparent success of all-day breakfast raises confidence that last quarter’s upbeat results are just the beginning of a full return to health.
Indeed, Q3 earnings marked the first time that U.S. same-store sales increased in three years. That metric, which measure sales at locations open at least 13 months — is vital for retail corporations.
MCD made a number of changes to get its mojo back. It curbed its use of antibiotics in its chicken, relaunched the Egg McMuffin using butter rather than margarine, and added a buttermilk crispy-chicken sandwich to the menu.
MCD Will Cycle Against Easy Comparisons
However, the biggest boost of all should come from all-day breakfast. Citing a study by NPD Group, The Wall Street Journal reports that all-day breakfast is luring customers back to the burger behemoth’s restaurants.
Amazingly, a third of customers who took advantage in all-day breakfast hadn’t been to McDonald’s for a month.
Additionally, all-day breakfast is also helping lunch. Customers actually order breakfast more at lunch, at which time they also add other items from the menu, NPD found. That means overall spending at MCD is up.
MCD stock was essentially range-bound between $90 and $100 a share for three-and-a-half years. It finally broke out on Q3 results and — thanks to all-day breakfast — is poised for a market-beating 2016, too.
Shares are up 25% in a poor year for equities. Sentiment has clearly turned. When current quarter results reveal the impact of all-day breakfast, you can bet MCD stock will only maintain its momentum.
After all, the company has to prove that its turnaround is for real. Skeptics can point to a demographic shift away from fast-food that hits at McDonald’s core. If that’s true, MCD’s growth has pretty much topped out.
But it looks like McDonald’s is doing a credible job of making its food seem healthier — and changing its menu. All-day breakfast should only gain steam, and that means MCD will be cycling against some pretty easy comparisons next year.
MCD stock hasn’t looked this good in years.
Dan Burrows did not hold a position in any of the aforementioned securities.
