McDonald’s Corp.’s stock experienced a significant rally on Friday, marking its first in seven months. This surge comes amidst Wall Street concerns regarding declining sales and traffic in the face of an uncertain macroeconomic environment.
According to Zachary Fadem from Wells Fargo, recent conversations with investors have revealed rising fears that the fast-food chain will fall short of fourth-quarter same-store sales expectations. These concerns are influenced by growing tensions in the Middle East and increased promotional activity within the quick-service restaurant industry.
Fadem states that investors have become more cautious about the year-over-year growth in same-store sales and anticipate a deceleration following last year’s strong performance. Additionally, there is a negative outlook for traffic growth in 2024.
However, there is a glimmer of hope. Fadem’s research indicates that trends have shown improvement throughout the fourth quarter. Furthermore, considering the mixed investor sentiment and reasonable valuation based on historical price-to-earnings ratios, he believes that the stock has a favorable setup going forward.
The stock, trading under the symbol MCD, saw a 2.2% climb during afternoon trading, inching towards its first-ever close above $300. The current record close stands at $298.41, achieved on June 30, 2023.
McDonald’s Set to Report Fourth-Quarter Results
McDonald’s, the renowned fast-food chain, is poised to release its fourth-quarter results early next month. Market analysts anticipate a 5% growth in same-store sales, which marks a decline from the impressive 8.8% growth achieved in the third quarter and 11.7% in the second quarter. This projected growth is also less than half of what was achieved just a year ago, amounting to 12.6%.
Despite this deceleration, McDonald’s has consistently exceeded same-store sales expectations over the past 11 quarters, surpassing market predictions in 17 out of the past 20 quarters.
McDonald’s Chief Financial Officer, Kevin Fadem, remains optimistic about the company’s growth prospects. He predicts an increase of 4% to 5% in the number of restaurants, which would be an unprecedented occurrence in recent memory. Fadem believes that Wall Street underestimates the long-term impact this growth will have on McDonald’s performance. The company has made substantial investments over the past decade to enhance the productivity of new stores, making this current period particularly opportune for significant returns on investment.
As McDonald’s stock continues to climb, rival quick-service chains like Restaurant Brands International Inc. (which owns Burger King and Popeyes Louisiana Kitchen) experienced a modest 0.1% increase in shares but have retreated by 2.3% from their record high on January 10th.
Similarly, Jack in the Box Inc.’s stock rose by 1.8% on Friday, although it remains significantly lower at 36.3% below its record closing price of $122.64 attained on May 10, 2021.
In other news, the Dow Jones Industrial Average (of which McDonald’s stock is a component) surged by 407 points or 1.1% on Friday, approaching a new record high at the close of the market.
Stay tuned for McDonald’s fourth-quarter financial report, which will shed further light on the company’s performance and its impact on the fast-food industry.