McDonald’s investors hungry for more after turnaround

By Leslie Patton

McDonald’s, three years into a dramatic turnaround effort, has left investors hungry for more.

Though the company matched Wall Street estimates for US comparable sales growth last quarter, the shares slipped as much as 1.9% at one stage in the latest trading session — a sign the bar has been raised for the fast-food giant.

After kicking off a rally in 2015, McDonald’s now carries a rich valuation compared with its peers, Bloomberg Intelligence analyst Mike Halen said. Investors also have grown accustomed to seeing McDonald’s beat estimates, rather than merely matching them. The last time the company didn’t exceed US comparable sales projections was July 2016.

“Momentum slowed a little bit in the fourth quarter on a two-year basis,” he said, and added: “The stock is down because it’s been on an absolute tear. Stocks don’t go up forever.”

McDonald’s US strategy also has increasingly become a race to the bottom. The world’s largest restaurant chain relied more heavily on a discounting push to maintain sales in its latest quarter.

The Illinois-based company has touted drink specials and sandwich promotions, and more recently revamped its Dollar Menu. That move is showing early signs of attracting more US customers.

The question now is how long McDonald’s can fuel growth by appealing to Americans’ penny-pinching instincts — especially as competitors fight back. Taco Bell and other rivals are rolling out their own items for as little as $1, making the fast-food industry even more cutthroat.

The shares had been up 3.3% this year. And they gained in each of the three previous years, fueled by chief executive officer Steve Easterbrook’s comeback bid. The Golden Arches are still outshining most of the restaurant industry. Last quarter, US comparable sales climbed 4.5% — a result most chains would envy.

Globally, McDonald’s exceeded estimates. Its lead international markets — a category that includes the UK and Canada — gained 6% on that basis. Overall, the sales climbed 5.5%.

McDonald’s profit also handily beat analysts’ estimates.

Mr Easterbrook believes the company can stay on track by touting convenience, menu variety and affordable prices. He’s also betting that a new mobile app and the rollout of delivery service can keep customers loyal.

“We are confident we will accelerate our momentum by capitalizing on our strong business model,” he said.

- Bloomberg

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