McDonald's delivery, new store formats could have sizable impact: Wells Fargo

McDonald's self-service kiosks are seen in a prototype restaurant housed in a warehouse in Chicago's West Loop area, in Chicago, Illinois, U.S., March 1, 2017. REUTERS/Lisa Baertlein (Copyright Reuters 2017)

McDonald’s (MCD) efforts to streamline and update its business model will likely have a swift and sizable payoff, said Wells Fargo restaurant and foodservice analysts Monday.

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Since taking the helm of the company in 2015, CEO Steve Easterbrook has worked to usher the Golden Arches further into the 21st Century, rolling out initiatives including all-day breakfast, a slimmed-down menu, fresh-beef trials, touch-screen ordering kiosks, mobile ordering and pay, and food-delivery options.

Such efforts have helped feed both the company’s stock price and sales growth at its restaurants. Over the last year, McDonald’s shares have surged nearly 30% as investors bet hungry customers will continue to crave the world’s biggest burger chain’s renewed focus on customizable food options and convenience. 

In the first quarter, McDonald’s reported a 4% jump in global same-store sales with a 1.7% bump in U.S. sales and a 2.8% boost in the UK, as adjusted earnings surged 19% and revenues contracted amid refranchising efforts.

The Oakbrook, Illinois-based company’s Experience of the Future initiative – which includes all the elements of its growth playbook – could drive sales growth of 1% at stores open at least 12 months as early as next year  considering the mid-single digit bump in same-store sales McDonalds’ Experience of the Future rollout has provided restaurants in Canada and the United Kingdom, while delivery could represent a 2% to 3% increase in per-share profit growth by 2018, a team of Wells Fargo analysts led by senior analyst Jeff Farmer said.

In January, McDonald’s partnered with UberEATS to pilot a food-delivery service at 200 of its Florida restaurants. The early success of the program prompted the company to scale it to a wider audience. It rolled out delivery to 2,500 U.S. stores with the expectation it will reach 3,500 by the end of June.

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“It’s still early days, but [McDonald’s] delivery performance has impressed, including 60% of sales after 4 p.m. and a delivery check that is two times larger than average,” the analysts said in a research note, adding they anticipate delivery additions peaking at 12,000 units, which could provide a 1.1% bump in same-store sales by the final quarter of 2019. 

Because of the growth potential, the team of Wells Fargo analysts increased their earnings per share target to $7.01 from $6.95, above the Wall Street average, and bumped up its price target on the stock to $175 from $165. McDonald’s shares notched a new all-time high of $155.46 at the opening bell Monday as they rose 0.5%.

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