For nearly two decades now, fast-food chain McDonald’s (MCD) has been using “I’m Lovin’ It” as its slogan of choice. A tagline that lasts that long in the face of frequent shopper attitude changes is no mean feat.
Yet, McDonald’s has backed this up with a menu that stands the test of time, makes periodic changes, and can still produce. New love from analysts gives this restaurant company’s stock a new life, and I’m bullish on McDonald’s overall for its impressive value and resilience.
The last year in share prices for MCD has been about ideal for investors. It’s been steadily appreciating since early 2021. The company spent most of January and February 2021 plateaued in the $200 to $210 range, with a small dip in March threatening to take the company under $200 per share.
That, however, kicked off a major upward move where share prices gained nearly 10% in two weeks’ time. Minor dips in the upward trend appeared at three points in the year.
One in July saw the stock go from around $234 to $226 in four days’ time. A second in October took the company from $240 to $235 in five days. Late November saw a much larger drop from about $256 to around $244 in just five days. But these small losses meant little, as shares are sitting around $270 today.
The latest news for McDonald’s bodes well for investors. Analyst Piper Sandler modified its rating for the fast-food chain, taking it from “neutral” to “overweight.” The analyst cited two key factors for the uptick. First was a growing demand overall for chicken and hamburger-based meals. The second was McDonald’s ability to adapt to the growing consumer demand for drive-through options.
Piper Sandler also recently made a nod to the upcoming full-release launch of the McPlant from Beyond Meat (BYND) early this year.
Resilience and Adaptability in One Handy Package
No one goes to McDonald’s for a world-class dining experience. They go for cheap, simple food that’s prepared at impressively high speeds at virtually any time of the day or much of the night. When people need to wedge a meal into a normal day’s activities, many think of McDonald’s. During the worst of the pandemic, McDonald’s discovered that its ability to shove food rapidly out a window into people’s cars made it virtually lockdown-proof.
The rise of the Omicron variant of coronavirus—while making much less a splash than its predecessors—is likely refueling some shoppers’ concerns about sitting in a room full of people while eating. That allows McDonald’s to come back in and offer its brand of high-speed, low-contact dining. There was always a certain value in drive-through operations, though that value was originally more about convenience than survival.
Yet, it’s not just the convenience that helps here. McDonald’s has always been willing to try new things, from the Shamrock Shake to the McRib and beyond. It’s modified its chicken sandwiches in the face of growing competition. To top it off, it has phenomenal name recognition. Everyone knows McDonald’s and knows what they’ll get when they walk into the room.
While McDonald’s high share price may make some investors balk, there’s still room for improvement here. The company is trading just below its average target and well below its highest targets. No one buys McDonald’s looking for explosive growth, however. People buy McDonald’s because it’s been around for approaching a century and still slinging burgers.
McDonald’s’ dividend history also gives investors reason to buy in. The company has been offering regular dividends that have been on the rise for over a decade. Even during the worst of the pandemic, McDonald’s carried on with dividend growth. That’s a sign of magnificent resilience.
Wall Street’s Take
Turning to Wall Street, McDonald’s has a Strong Buy consensus rating. That’s based on 22 Buys and four Holds assigned in the past three months. The average McDonald’s price target of $280.92 implies 4.5% upside potential.
Analyst price targets range from a low of $314 per share to a high of $260 per share.
Concluding Views
There are plenty of reasons to buy McDonald’s. The company is both sufficiently realistic to understand its true value to customers and sufficiently grounded to understand that this value changes from time to time. New products come in, get tested, and if they work, they stick around. The menu’s core seldom changes, and that resilience helps customers come back.
Here, the company’s stock behaves much like its stock in trade. It’s regular, it’s reliable, it’s consistent, and it’s valuable. I’m bullish on McDonald’s because this is a company that’s seen recessions and even pandemics come and go while remaining standing. That kind of resilience should be welcomed in any portfolio.
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Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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