What's Next for McDonald's (MCD) Stock as Industry Dives into Plant-Based Meat?

Benjamin Rains

Mon, Jun 24, 2019, 3:21 PM

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Shares of McDonald's MCD have jumped 15% this year to outpace its industry’s 10.5% climb. MCD’s jump comes as the overall food industry continues to evolve, which includes a recent wave of hype surrounding plant-based meat offerings from the likes of Beyond Meat BYND and others.

With this in mind, let’s see what’s next for the historic fast-food burger powerhouse as MCD stock rests near its 52-week and all-time highs.

Industry Trend Overview

Investors have heard for years that consumers’ eating habits have transformed, as they search for more fresh and healthier options. This helped give rise to companies like Chipotle CMG. Recently, Beyond Meat’s stellar run as a newly public company has left Wall Street clamoring to figure out if plant-based meats are the future, or just the next of a slew of healthy eating fads that may fade.

Beyond Meat is currently sold across roughly 30,000 grocery stores, restaurants, and food-service operations. This list includes Safeway, Publix, Kroger KR, and many more. And it’s not just upstart food companies anymore, Tyson Foods TSN and other industry giants have announced their plans to enter the plant-based meat market as more U.S. consumer start to become flexitarians.

Along with a new wave of offerings, comes the impact of delivery. Online and mobile food ordering and delivery firm Grubhub GRUB has expanded and Uber Eats is projected to play in the vital role for newly public ride-hailing power Uber UBER. Starbucks SBUX has pushed deeper into delivery over the last year and rival Dunkin' DNKN just recently announced a partnership with Grubhub to begin its nationwide delivery rollout.

MCD Outlook

McDonald’s has also adapted to these changes, which has helped its stock price crush the S&P 500 and its industry over the past three years, five, and ten years. These moves include store remodels, technological improvements, digital expansion, and menu changes. This includes a nationwide rollout of fresh beef offerings for its Quarter Pounder burgers over the last year, which McDonald’s said helped it sell 40 million more quarter-pound burgers during the first quarter of 2019 compared to the year-ago period.

McDonald’s has also bolstered its delivery offering in partnership with Uber Eats. On top of that, McDonald’s said Monday that it grew its share of the burger market in the informal-eating-out category for the first time in five years.

Last quarter, MCD’s global comparable sales jumped an impressive 5.4%. On top of that, UBS Evidence Lab conducted a survey of adult fast-casual consumers that found McDonald’s looks best positioned to post strong same-store sales and traffic growth. This put the Chicago-based burger giant ahead of second-place Wendy’s WEN, Burger King, Subway, and both Yum Brands’ YUM Taco Bell and KFC. UBS analyst Dennis Geiger raised his MCD price target from $185 to $203 in mid-June on the back of this survey. “Consumers continue to have particularly favorable perceptions of the brand and are inclined to increase visits going forward, w/ MCD focused on sales drivers that should resonate with consumers,” Geiger wrote in a mid-June note to clients.

Moving on, our Zacks Consensus Estimate calls for MCD’s adjusted second-quarter earnings to climb 3% to $2.05 per share. Meanwhile, its full-year fiscal 2019 EPS is projected to pop 1.8% on nearly flat revenue expansion. Peeking further ahead, MCD’s adjusted 2020 earnings are expected to surge 7.9% above our current-year estimate on 2.15% higher revenues.

Bottom Line

McDonald’s looks poised to expand amid the ever-changing restaurant and food industry, which could include a plant-based offering down the road. The firm is also a dividend payer that has raised its payout every year since paying its first dividend in 1976. MCD’s current annualized dividend rests at $4.64 per share, with a 2.27% yield.

Some of MCD’s valuation metrics are a little stretched at the moment compared to where they have been over the last serval years, as well as compared to its industry’s average. This is, however, to be somewhat expected with its stock up 32% in the last 24 months, against its industry’s 18% average.

McDonald's is currently a Zacks Rank #3 (Hold) that could continue to climb as it adapts to changing consumer habits. In the end, interested investors should ask themselves if they see McDonald’s remaining a staple in the U.S. and around the world for years to come?

MCD stock closed regular trading Monday at $203.92 per share, down just below its 52-week intraday high of $206.39. The company is scheduled to release its Q2 2019 financial results in late July.

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What's Next for McDonald's (MCD) Stock as Industry Dives into Plant-Based Meat?