McDonald’s Corporation: Why MCD Stock Will Pack a Comeback Punch

McDonald’s has overcome its negative image by embracing its roots as a burger joint, among other strategic changes

McDonald’s Corporation (MCD) has seen its fair share of trouble over the last few years. The fast food chain suffered when consumer preferences shifted toward healthier food and they turned away from the restaurant in favor of healthier alternatives.

In an effort to change with the times, McDonald’s tried to rebrand and change its offerings to get back into the public’s good graces, but the company’s efforts proved futile and MCD stock suffered.

However, McDonald’s has made a bit of a comeback in recent months and positioned itself well for the future, giving investors reason to consider the stock as a long-term play.

Although McDonald’s went through a series of changes to satisfy customer’s growing taste for healthier food — MCD added healthier options to the menu, among other rebranding efforts — the changes did very little to bring the burger chain out of its slump. Consumers still haven’t changed their minds about the nutritional value of a McDonald’s meal.

Higher-Quality Food and Service: McDonald’s Long-Term Backbone

Now, it appears that MCD CEO Stephen Easterbrook has accepted that McDonald’s will never be a pillar of health, and instead, he is working to make its grab-and-go appeal more desirable by improving the menu offerings, focusing on quality ingredients and making food service faster and easier.

This seems to be a winning strategy for McDonald’s, as the MCD stock price has risen roughly 25% over the last year.

One of the most important ingredients in McDonald’s comeback recipe is its innovative (by MCD standards) menu options. Nearly a year ago, the company introduced all-day breakfast, which has proven to be a great success. MCD also revamped its dollar menu to create the “Pick 2 for $2” menu.

Easterbrook’s commitment to improving menu items and listening to what customers want has been a big part of the firm’s revival, and it suggests that the Golden Arches will prosper in the future.

Another key component to McDonald’s improvement is the restaurant’s focus on high-quality ingredients. Instead of completely revamping its menu, McDonald’s has embraced its reputation as a burger joint, but is taking a page out of Chipotle Mexican Grill, Inc.’s (CMG) book by using higher-quality ingredients.

MCD has pledged to shift to using only cage-free eggs as well and eliminate the use of poultry treated with antibiotics. The firm is also testing the use fresh beef to make its burgers fresh rather than from frozen patties. All of these changes could go a long way to give McDonald’s a healthier image without completely changing its ethos.

As is the case for most big name firms, McDonald’s key challenge moving forward is capturing the millennial market. So far, its efforts to do so — adding experimental items like kale salads and wraps to its menu — have proven unsuccessful, but that doesn’t mean the firm has given up.

In addition to an updated menu, MCD appears to be trying to attract the next generation by luring them in with technology.

Earlier this year, McDonald’s announced that it would install tablets at locations across the UK. The tablets will allow customers to access the internet and play games while they dine. This may sound like a gimmick, but it could be a smart play for the future.

As mobile payments become more popular among millennials, many are expecting fast food chains like McDonald’s to begin implementing electronic self-service options that will cut down on the number of employees needed and speed up service. While the tablets in the UK won’t initially be used for ordering food, it could the company’s first step in setting up such a system.

The Bottom Line for MCD Stock

McDonald’s has done well to pull itself out of a rut so far, and the changes it has made have positioned the chain well for the future. There are certainly obstacles ahead, namely bringing millennials on board, but the firm appears to be addressing its weaknesses and moving forward.

While MCD stock’s 25% rise over the last year is unlikely to repeat itself, it’s likely to continue moving steadily upward in the years to come, making it a good long-term play.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/mcdonalds-mcd-stock-comeback-punch/.

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