The iconic fast-food giant, McDonald’s (MCD:NYE), might not be capturing the spotlight when it comes to market share trends. However, there is an intriguing upside opportunity that might be overlooked. Despite facing stiff competition, analysts believe there’s a slightly bullish case to be made for MCD stock forecast.
Market Share Decline Haunts MCD Stock:
At first glance, the performance of MCD stock appears decent. Year-to-date gains of around 7% coupled with a dividend yield of 2.11% offer a solid investment prospect. However, the past month has witnessed a noticeable fade in share prices. This has prompted investors to question the dynamics. A significant concern is raised from McDonald’s losing ground in terms of market share.
MCD Stock and SBUX Stock Analysis: The Giant Rivalry
A dive into the U.S. Census Bureau’s data for the retail food services and drinking places sector reveals that during Q4 2020, McDonald’s generated revenue of $5.31 Billion. It constituted 9.37% of the total retail food/beverage services market, which stood at $56.7 Billion. Meanwhile, its rival Starbucks (SBUX:NSD) reported sales of $6.75 Billion with a larger market share of 11.9%.
Starbucks’ market share remained steady at just over 10% between Q1 2022 and Q2 2023, resembling pre-pandemic trends. In contrast, McDonald’s average market share dipped to 7.1% during this period. However, looking back at the six quarters leading up to Q4 2019, the Golden Arches held an average market share of 8.43%. This highlights the challenge McDonald’s faces against Starbucks and other competitors.
MCD Stock Forecast Based on Q2 Performance:
Despite the slipping market share, it’s not time to sound the alarm bells for MCD stock just yet. The recent Q2 earnings report shows that this (MCD:NYE) can still surprise the market. McDonald’s reported $6.5 Billion in revenue. It also reflected an impressive 13.6% year-over-year (YoY) increase. Moreover, this figure exceeded Wall Street’s expectations by $210 Million.
Earnings per share (EPS) came in at $3.17, surpassing estimates by 39 cents. Additionally, “systemwide sales surged by 14%, and the company’s consolidated operating income skyrocketed by 81% during the quarter.” U.S. comparable sales experienced a 10.3% boost due to menu price hikes and higher foot traffic.
In terms of market share within the retail food/beverages sector, McDonald’s rebounded to 7.3% in Q2 from 6.7% in Q1. This shows that the company is committed to reclaim the lost ground and align well with investor enthusiasm for MCD stock.
The Influence of Trade-Down Effect on MCD Stock:
To grasp the hidden potential in MCD stock, we must look into the trade-down effect. In times of financial strain, consumers don’t halt spending abruptly but opt for lower-priced alternatives to find a balance between price and quality.
As the Federal Reserve acknowledges ongoing inflation battles, consumers are delaying purchases of big-ticket items. This points to a potential shift towards more affordable choices, especially for workers returning to offices. Consumers may shift to other options like McDonald’s over pricey coffee products from Starbucks. Opting for economical alternatives could become a trend as economic pressures persist.
MCD Stock Forecast: Analyst Insights
Wall Street seems to share the sentiment that there’s untapped potential in MCD stock. Analysts project an average price target of USD 318.28 suggesting a 13.54 % upside potential. The current price of (MCD:NYE) is USD 280.31. McDonald’s has a market CAP of USD 205.70 Billion.
The stock has low volatility and has given a superior return on assets in the past 5 years. However, the stock is overpriced as compared to its peers and has had low earnings growth in the past 5 years. MCD stock experienced a 6.37% increase in year-to-date capital gain value within the industry. Analysts rated the stock as a “Strong Buy” in their consensus rating.
Bottom Line:
While McDonald’s may be facing challenges in terms of market share, there is a silver lining. The concept of the trade-down effect comes into play as consumers seek cost-effective options amidst economic uncertainties. This could act as a catalyst for the boost in MCD stock forecast. Hence, provides a more compelling reason for investors to consider the Golden Arches as a rewarding long-term choice.
