McDonald’s: Long Growth Runway, Good Upside Potential

I am bullish on McDonald’s (MCD) as it has a strong competitive position within the fast-food industry, a lengthy growth runway, and near-unanimous support from Wall Street analysts.

Originally, McDonald’s was a concession stand by Richard and Maurice McDonald in California. Ray Kroc realized the potential of their burger business and convinced them to sell their franchise in 1955. Within a few years, Kroc took over the business from the couple.

In 1962, Ray adopted a business model that transformed the concession stands into an up-and-running fast food restaurant. The company expanded into a multinational chain and has more than 40,000 restaurants worldwide. 

Omicron Variant Fails to Derail MCD Stock’s Growth Momentum

Mcdonald’s reported a net income of $1.164 billion in Q4 2021, though it missed expectations on a per-share basis. Big reasons for this were lockdowns and social distancing mandates in the last quarter of 2021 due to the new COVID-19 omicron variant. 

Nevertheless, there is an upward growth trajectory in the revenue generated year-over-year, so the long-term course remains positive. The first quarter has shown steady growth despite the increasing operating costs and expenses (up 14%). Same-store sales continue to compensate for the expenditures with an improvement of 7.5%.

Moreover, nearly 21 million students are active members of the McDonald’s loyalty program, demonstrating significant young consumer interest in the franchise.

Wall Street’s Take

According to Wall Street analysts, MCD earns a Strong Buy consensus rating based on 22 Buys, four Holds, and zero Sell ratings in the past three months. Additionally, the average McDonald’s price target of $286.50 puts the upside potential at 20.6%.

MCD Stock Retains Its Wide Moat

In addition to the strong support from Wall Street analysts, MCD boasts an impenetrable moat. It rises above the competition because of its effective market penetration approach and targeted product development strategies for niche communities.

Due to this, the company has positioned itself as a global market leader with restaurants in nearly 120 countries with more than 13,000 outlets operating in the U.S. alone. Around 90% of the global franchises supervise day-to-day operations independently.

This smart strategy facilitates a steady income and financial stability for the company. MCD hopes to launch over 1,400 new restaurants in the coming year.

Summary and Conclusions

MCD is a prominent, well-respected, and one of the most valuable brand names in the global fast-food industry. Additionally, it has implemented a franchise-focused business model that has enabled it to scale rapidly without having to invest too much of its own capital.

The company has come to be known for its track record of paying out reliably increasing dividends, and Wall Street analysts are overwhelmingly bullish on it here. As a result, it looks like it might be a good time to add shares.

Download the TipRanks mobile app now

​To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.