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McDonald's Corp MCD

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Economic Moat




McDonald's Postpandemic Investment Story Takes Shape Through New Promotions and Dividend Increase

R.J. Hottovy, CFA Sector Strategist

Analyst Note

| R.J. Hottovy, CFA |

We believe investors should focus on three topics coming out of wide-moat McDonald's better-than-expected third-quarter sales update. First, U.S. comps of 4.6% (versus Consensus Metrix market expectations of 2.7%) were the clear highlight and reaffirm that strategies put in place to navigate coronavirus-related disruptions have long-term potential. Notably, McDonald's Travis Scott celebrity meal promotion helped to jump-start comps in September (double-digit growth, including positive comps across all dayparts including breakfast), and we believe much of this momentum will persist into the fourth quarter with the recently announced J Balvin meal. While promotions deserve credit for the top-line outperformance, we believe menu innovations like Spicy McNuggets as well as digital ordering and drive-thru enhancements have been solid contributors to recent performance, helping to drive average order size and dinner daypart strength.

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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 June 2020, there were roughly 39,000 locations in more than 120 countries: 36,400 franchisee/affiliate units and 2,600 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 "velocity growth accelerators" such as an Experience of the Future layout (counter, kiosk, web ordering and table service/curbside delivery), mobile ordering and payments, and delivery alternatives.

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