The restaurant sector will take time to recover from the economic fallout of COVID-19, but McDonald’s (MCD) is well positioned long term, says one analyst.
“Value-oriented players tend to outperform during economic shocks,” R.J. Hottovy, an analyst at Morningstar, wrote in a note to investors.
The company’s economies of scale and investment in technology gives the Golden Arches an advantage over restaurants struggling to weather the pandemic.
“These qualities will help McDonald’s compete for market share ceded by smaller independents that are unable to survive extended periods of coronavirus-related restaurant regulation and guest traffic declines,” wrote Hottovy.
The analyst note highlights McDonald’s ordering flexibility via kiosk, web, and mobile ordering and a more streamlined menu that still allows for personalization.
The company’s acquisitions of predictive ordering and voice technologies “have already started to make McDonald’s a more agile organization better aligned with evolving consumer restaurant preferences,” wrote Hottovy.
“We believe the company’s technology investments, value platform, and franchisee health will allow it to sustain normalized mid-single-digit system sales growth and mid- to high-single-digit operating income growth over longer horizon,” he added.
“Although McDonald’s faces increased competition, an uneven macro environment, and evolving consumer views about menu composition and in-restaurant experience, we believe it possesses a wide economic moat,” wrote Hottovy.
The analyst also highlights McDonald’s brand recognition and leading market share in most countries in which it operates, with the exception of China.
“McDonald’s generated $100 billion in sales at its company-owned and franchised restaurants during 2019, representing almost 4% of the estimated $2.5 trillion global restaurant industry. This almost doubles Yum Brands’ systemwide sales of $53 billion in 2019 (including Yum China) and dwarfs Restaurant Brands International ($34 billion) and Subway ($12 billion),” wrote Hottovy
In its first quarter results, McDonald’s global same stores sales tumbled 3.4% as some restaurants in China were temporarily closed and many stores in the US shifted to take-out, delivery or curb-side pick-up amid shelter in place measures.
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Ines covers the U.S. stock market from the floor of the New York Exchange. Follow her on Twitter at @ines_ferre
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