McDonald's (MCD) has been serving up its signature burgers and other popular offerings, like Chicken McNuggets and Eggs McMuffin, for decades. Apart from its reliably consistent menu, McDonald's is also a part of the elite “Dividend Aristocrats” group - members of the S&P 500 Index ($SPX) that have raised their dividend payments for 25 consecutive years or more.
And as the fast food chain embarks on a major investment initiative that includes a Google (GOOGL) partnership on artificial intelligence (AI), now may be an opportune time to scoop up shares of MCD for a combo of income and growth.
McDonald's Plans for Aggressive Growth
Earlier this month, McDonald's lifted the curtain on some of the milestones it plans to achieve during the “fastest period of growth in [the] brand’s history.”
Chiefly, the company is planning to open about 10,000 restaurants globally by 2027, and double both the user base and revenue of its loyalty program by 2027, as well - which translates to targets of 250 million users and $45 billion in sales.
The company is looking to add about 7,000 stores in its international developmental licensed markets such as China, Japan, India and Brazil. Notably, this expansion would raise its global footprint to about 50,000 by 2027.
Separately, in its second-largest market of China (where it operates about 5,500 stores), McDonald's recently agreed to acquire Carlyle Group's 28% stake in the partnership that manages the burger chain's business across mainland China, Hong Kong and Macau. This will allow McDonald's to have greater control over its business in the region.
Leveraging AI and Doubling Down on Digital
Notably, McDonald's also said it's looking to further hone its competitive edge via the use of AI. To that end, McDonald's recently announced a strategic partnership with Google Cloud to utilize the latest cloud technology and apply generative AI solutions across its restaurants worldwide, with the goal of helping to accelerate automation innovation from equipment manufacturers, as well as allow restaurant general managers to quickly spot and enact solutions to reduce business disruptions. The company is set to deploy this software in 2024 in its restaurants, mobile apps and kiosks.
Already, McDonald's has also been doubling down to enhance its revenues from digital means. Notably, across its top six markets, digital sales accounted for over 40% of system-wide sales during the third quarter, reaching nearly $9 billion. The company now has over 57 million 90-day active members, up ~10% sequentially, across these top markets, contributing to the continued growth of the digital channel. Furthermore, these active members are also helping the company with consumer insights regarding their changing preferences, food choices, and number of visits.
Digital initiatives are yielding results, too. In the German market, the company extended its McSmart menu strategy to its digital app, which contributed to the addition of an extra 1 million 90-day active loyalty members in the third quarter. Meanwhile, the reintroduction of its MONOPOLY promotional game on the MCD app drove customer engagement and digital sales.
How is MCD Stock Performing in 2023?
In Q3 2023, McDonald's reported revenues of $6.7 billion, up 14% from the previous year and above the consensus estimate of $6.58 billion. Adjusted EPS of $3.19 also surpassed the consensus estimate, and was up more than 19% compared to the year-ago period. MCD's EPS have topped expectations in each of the past five quarters.
Cash flow from operations increased by a solid 24.5% from the previous year to $3 billion, as the cash balance swelled to end at $3.5 billion at the end of the quarter.
Notably, over the past 3 years, revenue at MCD has grown at a CAGR of about 9%, while EPS has grown at a rate of 20%. Looking ahead, Wall Street is expecting McDonald's to report EPS growth of 8.49% for the current quarter, and 16.44% for FY 2023.
McDonald's stock hasn't exactly been on a tear in 2023, rising just about 8.7% on a YTD basis. However, compared to the performance of the broader S&P 500 Dividend Aristocrats ETF (NOBL), MCD is still outperforming.
Overall, analysts remain quite upbeat about McDonald's stock, giving it an average rating of “Strong Buy” with a mean target price of $314.31. This indicates an upside potential of about 9.4% from current levels. Out of 29 analysts covering the stock, 19 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating and 7 have a “Hold” rating.
