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McDonald's Corp MCD

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McDonald's Set for Market Share Gains Via Marketing, Menu, and Digital/Drive-Thru/Delivery Plans

R.J. Hottovy, CFA Sector Strategist

Analyst Note

| R.J. Hottovy, CFA |

We believe the key takeaway for wide-moat McDonald's investors coming out of its third-quarter update and 2020 investor day event is that the firm remains well positioned for postpandemic market share gains. Sales trends are unlikely to be linear--evidenced by U.S. October comps returning to mid-single-digit growth after low-double-digit growth in September due to the Travis Scott promotion--but we believe various components of its "Accelerating the Arches" plan position McDonald's to meet (and likely exceed) its 2021-2022 guidance calling for mid-single-digit systemwide sales growth, operating margins in the low-to-mid 40s, annual G&A spend of around 2.3% of system sales (versus 2.2% in 2020), capital expenditure of $2.3 billion, and implied free cash flow of $5.5-$6.0 billion. We also believe McDonald's can sustain systemwide sales growth trends beyond 2022, owing to new comp drivers and international restaurant unit acceleration.

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Company Profile

Business Description

McDonald's generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Restaurants offer a uniform value-priced menu with some regional variations. As of September 2020, there were roughly 39,100 locations in more than 120 countries: 36,400 franchisee/affiliate units and 2,700 company units. After reorganizing the company into segments based on the maturity and competitive position of its different markets, refranchising 4,000 locations, and eliminating $500 million in net annual SG&A expenses the past several years, the company is focused on its "Accelerating the Arches" plan, which includes (1) optimizing its marketing approach; (2) focusing on its core menu; and (3) doubling-down on digital, drive-thru, and delivery efforts.

110 North Carpenter Street
Chicago, IL, 60607
T +1 630 623-3000
Sector Consumer Cyclical
Industry Restaurants
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 205,000