McDonald’s stock keeps hitting records

The company has been a safe haven for investors in a volatile period on Wall Street, says RB’s The Bottom Line.
Photograph courtesy of McDonald's Corp.

The Bottom Line

Investors have taken a liking to the Golden Arches lately.

Stock in the Chicago-based burger giant hit another in a long line of all-time record highs on Monday at nearly $189 a share.

The stock fell later as stocks overall took a hit—the Dow Jones Industrial Average plunged more than 400 points on Monday morning and most restaurant stocks were down. But McDonald’s has still been a haven for many investors in a volatile two months on Wall Street.

It is up 20% since mid-September (a period in which broader stock indexes are all down) and 50% since January 1, 2017. Investors are banking on the company’s remodel, technology and marketing efforts to keep it ahead of competitors in the coming years.

The surge in McDonald’s stock is coming despite consistent traffic challenges at the company all year long. It is losing market share in the morning. And its renewed dollar menu has failed to generate the customers executives had hoped.

Oh, and franchisees have formed an independent association for the first time in the chain’s storied history. And there are mounting concerns that the level of investment and kitchen complexity are slowing down service times.

But the company has been gaining market share against its primary competitors, and the restaurant business as a whole.

McDonald’s same-store sales rose 2.4% in the third quarter, while both of its primary competitors saw same-store sales declines, and only Sonic Drive-In (2.6%) and the much smaller Fatburger (8.3%) performed better.

Still, McDonald’s massive size means that its same-store sales increases have a bigger overall impact on the restaurant market.

According to Technomic Transaction Insights data, the company’s share of the market for the 100 largest restaurant chains has increased by more than half a percentage point over the past 12 months. No chain—not even fast-growing Chick-fil-A—has expanded its share as much.

The company has done this despite seeing many of its locations close due to remodeling. McDonald’s expects to have 12,000 of its 14,000 domestic restaurants remodeled by the end of 2019.

While McDonald’s has generated concern among franchisees for the level of investment it is requiring them to make, it has also become one of the most technologically savvy restaurant companies on Wall Street in relatively short order.

It quickly added delivery to much of its system last year. Its rapid addition of kiosk ordering nearly systemwide in the U.S. is impressive given its massive size. Kiosks promise higher order sizes for indoor orders and could offset some labor costs during weak periods.

The company has been adding new products. It added a trio of new large breakfast sandwiches this month as it hopes to regain its morning dominance, for instance, and is toying with made-to-order chicken sandwiches.

All of these efforts could continue to build sales in the coming years in the U.S., McDonald’s biggest market. And international sales have proven steady in recent years.

Maybe one other thing could be providing a boost to McDonald’s stock: the threat of an oncoming recession.

There are some concerns that the Federal Reserve and the administration could lead the country into a recession—though others think that such a thing is still a ways off. Chains such as McDonald’s can frequently be recession-proof—its sales generally outperformed many other restaurants during the Great Recession, for instance.

Indeed, as McDonald’s stock soared to record highs Friday, many casual-dining names such as Applebee’s owner Dine Brands, Chili’s owner Brinker International, Darden Restaurants and others all fell significantly.

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