McDonald’s Well Equipped to Power Through Labor Shortage

McDonald’s (MCD) stock has been slowly and steadily climbing higher in recent months, supported by solid, albeit unsurprising quarterly earnings beats.

Despite the so-called “three Ds” (delivery, drive-thru and delivery), providing the company with a recovery pathway amid horrific 2020 lockdowns, it’s the company’s creativity that could fuel the next leg of the stock’s rally higher. (See today’s best-performing stocks on TipRanks)

Indeed, the fast-food world is incredibly competitive. Still, McDonald’s has managed to find a spot with younger consumers, thanks to its celebrity-endorsed meals, most notably the Travis Scott and BTS meals. Moving ahead, McDonald’s appears to be an attractively valued defensive that may have what it takes to get its growth edge back, even in the face of stiff rivals in the quick-serve restaurant space.

McDonald’s CEO Chris Kempczinski has had a chance to make his mark on the company, helping it navigate through the worst of the horrific pandemic.

There’s no question that Kempcizinski jumped right into the deep end, being handed the reins right before the COVID-19 crisis struck. Given the firm’s resilience through the horrific crisis, it’ll be exciting to see where Kempczinski can take the company once the pandemic finally has a chance to wind down.

With plenty of room to innovate on the menu front, and the rise of the McPlant — which could evolve to become a mainstay on McDonald’s “Darwinian” menu — I am incredibly bullish on McDonald’s, especially under the leadership of Kempczinski, whose management style appears to be paying off despite recent macro challenges.

McDonald’s Same-Store Sales Surge

In late October, McDonald’s pulled the curtain on some powerful third-quarter results, beating Street consensus per-share earnings. The highlight of the quarter was the nearly 12.7% rise in same-store sales, beating the consensus estimate of 10%. The management team also noted its plans to resume share buybacks amid quickly-improving fundamentals.

How has McDonald’s been able to stay relevant to a new generation of consumers?

It all goes back to the three Ds. Drive-thru has always been a strong point of McDonald’s business. The availability of drive-thrus helped dampen the blow dealt by the COVID-19 crisis in 2020. Where McDonald’s is really starting to shine is on the delivery and digital front.

The company’s loyalty program is a must-use for McDonald’s fans. The already solid value proposition is made that much better, with intriguing offers tailored to individual consumer tastes.

Undoubtedly, McDonald’s is starting to show that it’s more than capable of staying relevant in the technological age. If anything, McDonald’s looks poised to evolve to become an incredibly innovative company.

With much-improved delivery infrastructure and an app that beckons customers into its stores, it’s not a mystery as to why McDonald’s has enjoyed larger orders. The company is removing friction from sales, a trend likely to continue well after the pandemic is over.

Despite firing on all cylinders on the three Ds, the company is not immune from macro issues that could continue to be a theme in the early innings of 2021. Most notably, the Great Resignation and labor shortages could act as an overhang on McDonald’s stock.

Higher wages, more perks, and benefits could help firms like McDonald’s attract talent at the expense of operating margins. Still, McDonald’s has continued rolling out its in-store kiosks, allowing each fully equipped restaurant to operate with less staff than before.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, MCD stock comes in as a Strong Buy. Out of 22 analyst ratings, there are 19 Buy recommendations and three Hold recommendations.

The average McDonald’s price target is $275.14. Analyst price targets range from a low of $255 per share, to a high of $306 per share.

Bottom Line

While we’re far from having a fully autonomous McDonald’s, one has to think that we’re moving steadily towards one as the company looks to find its way around labor challenges.

In any case, kiosks, mobile, and the ability to raise prices should help McDonald’s alleviate upward pressure on wages over the medium term. Such innovations are also likely to apply upward pressure on the company’s margins.

Disclosure: Joey Frenette owned shares of McDonald’s at the time of publication.

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