McDonald’s Corporation (MCD) Stock Thrives in the Intersection of Health & Price

A few years ago, McDonald’s Corporation (NYSE:MCD) was the poster child for gross, greasy and cheap food. That’s why MCD stock really didn’t do much in 2013, 2014 or 2015. It was just flat.

McDonald's Corporation (MCD) Stock Thrives in the Intersection of Health & Price

But then McDonald management started to figure things out in 2016, and MCD stock hasn’t looked back. So far this year, MCD stock is up 30% year-to-date, pushed markedly higher today by a blowout quarter.

The 30% gain broadly outperforms not only the market, but also other restaurant stocks. USCF Restaurant Leaders Fund (NYSEARCA:MENU), a restaurant ETF with exposure to food chains like McDonald’s, Chipotle Mexican Grill, Inc. (NYSE:CMG) and Cheesecake Factory Inc (NASDAQ:CAKE), is up only 4%.

Clearly, MCD stock is a winner in the restaurant space.

But can this continue? Lets dig deeper to find out.

Excellent Quarter for MCD Stock

McDonald’s really just had an awesome quarter.

It was the company’s strongest global comparable sales and guest count result in more than five years. Global comps rose 6.6% versus expectations for a 4% rise. That 6.6% comp is much, much better than recent results, and it underscores that the global MCD stock growth story is actually speeding up, not slowing down.

Comps in the United States rose 3.9% versus expectations for a 3.2% rise. Again, that is much better than recent results. The big drivers of the strong comp growth were the company’s beverage value promotion and Signature Crafted premium sandwich platform. This dynamic illustrates how McDonald’s is overlapping health with affordability to drive customer traffic.

In the International Lead segment, comps rose 6.3% versus expectations for a 3.3% rise. The High Growth segment saw comps rise 7% versus expectations for a 3.6% rise. All in all, the positive topline story coupled with operating expense leverage through re-franchising is leading to robust operating and net profit growth. Operating income rose 24% year-over-year to $2.3 billion, topping expectations. Earnings per share rose 36% year-over-year to $1.70, also topping expectations.

The results were great, and they’ve been great for a while. MCD is just pumping out positive comp numbers in a restaurant environment that has struggled to consistently drive traffic growth for some time.

How is McDonald’s doing it? And can it continue?

McDonald’s Has Successfully Adjusted

MCD stock reinvented itself to be more appropriately adjusted to today’s health-conscious consumer.

McDonald’s President and Chief Executive Officer Steve Easterbrook said it best at the top of the company’s Q2 press release: “We’re building a better McDonald’s and more customers are noticing.”

That is exactly what has happened. MCD was once the beleaguered brand that no parent wanted their kids to eat. When health-conscious trends came to the forefront, McDonald’s disappeared in the background. Healthier quick-service alternatives like Chipotle rose in popularity and quickly stole market share.

The days of fast, cheap and greasy food were over. Instead, consumers began to place more importance on health.

So McDonald’s adjusted. They revamped the menu with premium, healthier offerings, while also keeping the traditional menu intact, since it appealed to price-conscious consumers. They rolled out initiatives like All-Day Breakfast and Grand Mac to excite customers and draw traffic in. They ran promotions like the McPick 2 for $5 menu to remind customers that they are still the go-to affordable option in the restaurant industry.

Overall, McDonald’s has found itself thriving in the small overlap between health, convenience and affordability. This turnaround is still in its early innings, so growth is actually picking up (just look at this quarter’s comp numbers). With growth picking up, MCD stock continues to look attractive at these levels.

Bottom Line on MCD Stock

McDonald’s has successfully reinvented itself in today’s health-conscious world, and the numbers are shining as a result. This turnaround still has more growth left in its tank, and so MCD stock can head higher.

As of this writing, Luke Lango was long MCD stock. 

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