McDonald’s (NYSE:MCD) stock has delivered good news lately, but investors are selling it.
The company’s net income of $2.2 billion, $2.95 per share, on sales of $5.9 billion was huge, especially compared with the previous pandemic year.
McDonald’s numbers were also up nearly 7% over 2019. There was serious growth and big profits.
Despite this, the stock is down since the earnings came out. MCD stock trades at around $238 per share. That’s a price-to-earnings ratio of about 26 and a yield of 2.15%, compared to a 30-year bond yielding under 2%.
Shira Petrack of Placer.AI, which tracks retailers’ traffic, wrote monthly visits were still down 11% from 2019. Visits seemed to return to pre-pandemic levels in July, however, indicating the recovery is still underway. Visits are also now tilted toward the evening, with mornings still well down from 2019.
Gains over 2019 weren’t down to visits, but to price hikes, and the success of the chain’s Crispy Chicken Sandwich, which was launched in February.
Restaurant Brands (NYSE:QSR) started the “chicken sandwich wars” at its Popeye’s chain, but other restaurants have followed. That’s because chicken is a cheaper protein than beef. It’s also considered more sustainable, requiring less feed to produce.
McDonald’s was late to the chicken sandwich party. Its entry won’t compete for best in show (I tried one on a recent car trip), but foot traffic surged 19% the day the sandwich came out and stayed elevated.
Unlike many other chains, McDonald’s is truly global. The chain has “internationally operated” markets, which it handles directly, and “licensed” markets, handled through master agreements. The “operated” markets, in Europe and countries like Australia and Canada, showed the strongest growth.
International Sales, Covid and MCD Stock
The international footprint means McDonald’s may still have room to grow. Many markets are still badly affected by the Covid-19 pandemic. Only the developed world has a wide stream of cheap, effective vaccines. As vaccine supplies increase, international growth should accelerate.
Fears of the Delta variant are just another reason to buy MCD stock, according to TV analyst Jim Cramer. He said Bob Lang of ExplosiveOptions.net put a $270/share price target on the stock just ahead of earnings.
Most analysts agree with Cramer. Of 25 following McDonald’s on Tipranks, 22 say buy it. The highest one-year price target is $295/share. That would represent a 25% gain from where it’s currently trading. That may be why so many analysts are pounding the table for the stock.
CEO Chris Kempczinski has continued the strategies of his scandal-tinged predecessor, Steve Easterbrook. He says he is trying to keep the chain “relevant.”
He has leaned into delivery and rewards programs and says the chain gets constant feedback from social media. A native of Cincinnati, he has also kept a low public profile, in contrast to his predecessor.
The Bottom Line
McDonald’s brings 37% of revenue to the net income line. That’s even better than Facebook (NASDAQ:FB), because it franchises the vast majority of its restaurants.
Starbucks (NASDAQ:SBUX), by contrast, owns its stores, and even in a good year brings 15% of revenue to net income. But the franchised model means McDonald’s has less total revenue than Starbucks.
McDonald’s is a great defensive stock. It is growing even though many of its operations aren’t completely through the pandemic.
MCD stock won’t make you rich, which may be why speculators jumped off after earnings, but it will deliver both income and growth. The growth is also sustainable, sort of like chicken. Buy the dip.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.