'Chicken is stealing the show' over beef at McDonald's, analyst says

By Steve Gelsi

J.P. Morgan analyst sees potential chicken market as double the beef biz

McDonald's Corp. continues to show that it's better and getting bigger, one J.P. Morgan Chase analyst said Thursday.

Meanwhile, Shake Shack Inc. (SHAK) drew an upgrade to strong buy from outperform at Raymond James.

Also read: McDonald's CosMc's spinoff launches this month with churro frapp?s, pear slushes

The upbeat comments from analysts came after both food retailers met with Wall Street in recent days.

McDonald's (MCD) said Wednesday it plans to add 10,000 stores over the next four years to bring its total to 50,000, as part of its investor day.

While McDonald's "best burger" plan to improve quality with a brioche bun, fresher/meltier toppings, and patties with a more uniform sear will roll out in 70 markets in 2024, chicken continues to be a rising star on the company's menu, said J.P. Morgan analyst John Ivankoe.

"Chicken...is stealing the show," Ivankoe said, as he reiterated an overweight rating on the stock and lifted his price target to $300 from $278 million.

Chicken accounts for about $25 billion in systemwide sales, which is now equal to beef. Chicken McNuggets' annual sales now tip the scales at $10 billion and have been increasing by about 10% a year since 2019.

And the global chicken market is estimated to be twice that of beef, he said.

J.P. Morgan analyst Ivankoe said McDonald's confirmed his beliefs that the company would step up its capital spending from a "slow" run rate of $2 billion, up to $3 billion in fiscal 2025 with increases thereafter to perhaps plateauing close to $4 billion in 2027 and beyond.

"MCD demonstrates 'better at getting bigger'," Ivankoe said.

McDonald's stock rose by 0.1% in premarket trading on Thursday. The company's stock is up about 8.7% in 2023, compared to a 9% increase by the Dow Jones Industrial Average DJIA.

Meanwhile, Raymond James analyst Brian Vaccaro upgraded Shake Shack to strong buy with a $78 price target, after the burger chain met with investors on Monday.

"We 1) believe the company is still in the early innings of driving improved margins and lowering development costs and 2) see idiosyncratic opportunities into 2024 to increase margins and potentially stimulate traffic, which could create upside to consensus 2024 expectations," Vaccaro said in a research note.

Shake Shack's stock has risen by 51% in 2023, compared to a 19.1% increase by the S&P 500 SPX.

Also read: Why Subway and other restaurant chains are giving out free cookies today

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

12-07-23 0948ET

Copyright (c) 2023 Dow Jones & Company, Inc.