You probably shouldn’t bet against McDonald’s (MCD) shares. They always bounce back.
Since it went public in 1965, McDonald’s has managed to adapt to changing market conditions, constantly rising again after a brief decline. I’m bullish on MCD. (See Analysts’ Top Stocks on TipRanks)
Investors have taken notice, making McDonald’s shares a big winner on Wall Street. TipRanks assigns McDonald’s a Smart Score of Perfect 10, citing strong technicals and increasing hedge fund activity.
On Wednesday morning, the franchise pioneer reported solid Q3 results that beat market expectations. In addition, same-store sales were strong both at home and abroad, proving that McDonald’s can survive and thrive in good and bad times by adapting to customer needs.
“Our third-quarter results are a testament to our unparalleled scale and agility,” said McDonald’s president and Chief Executive Officer, Chris Kempczinski. “Our global comparable sales increased 10% over 2019, which was delivered across an omnichannel experience that is focused on meeting the needs of our customers.
“We continue to execute our strategic growth plan and run great restaurants so that we can drive long-term, sustainable growth for all of our stakeholders.”
An Enduring Franchise
Thanks to its business model, collective entrepreneurship, McDonald’s is among the few franchises that have endured the test of time.
It’s a network organization that lets its franchisee-members, management, and shareholders share the risks and rewards from discovering and exploiting new business opportunities.
This allows McDonald’s to attain economies of scale and scope without the conventional problems of monitoring and control common in large and diverse business organizations. That’s why McDonald’s business model has become the standard for other franchises.
Then there’s the location. As a first-mover in the restaurant franchise space, McDonald’s has purchased and developed top real estate locations, which it leases to its franchisees, meaning that McDonald’s is a real estate trust, in addition to being a fast-food franchise.
There’s also adoption and adaptation by offering new product menus, and new services, to address the changing market conditions. For instance, in the 1960s, McDonald’s offered a “fast and convenient menu” to address the tastes and preferences of the baby-boomer generation.
In the 1990s and early 2000s, McDonald’s “fast” and “convenient” menu was augmented by the addition of “healthy” and “more natural” items, like salads, fruits, and carrot sticks to address the tastes of a health-conscious consumer.
Wall Street’s Take
McDonald’s has a strong following in the analyst community. Twenty-five analysts followed its shares in the last three months, rating them a Strong Buy.
The average McDonald’s price target of $272.33 implies 11.5% upside potential.
Bottom Line
McDonald’s is a real estate trust and a fast-food franchise that has endured the test of time, providing long-term investors with superior returns.
Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of McDonald’s.
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