With a 20% rally under its belt since October, it goes without saying that McDonald's Corp NYSE: MCD is coming into 2024 looking pretty hot. After a disappointing Q3 threatened to spiral out of control, the year's final quarter came to the rescue, and the stock is currently within a few dollars of all-time highs.
Looking ahead to the rest of 2024, there's much to like about McDonald's and its prospects for further gains. Last week, the team from Jefferies called them one of the top picks from the restaurant sector on the basis that McDonald's stands to do well in both offensive and defensive market environments. When times are tough and consumer spending drops, the company still outperforms its peers, and the same is true when spending is up.
This becomes immediately apparent if we compare McDonald's performance in recent months to that of the Invesco Food & Beverage ETF NYSEARCH: PBJ. Against McDonald's 20% since October, the PBJ ETF has gained just 12%, while over the whole of 2023, it was flat against McDonald's gain of 12%.
Bullish comments
The Jefferies team rated the stock a Buy and gave its shares a fresh price target of $330. Having closed out 2023 at $296, this points to further upside in the coming weeks in the region of 10%. It would also mean that McDonald's shares would have crossed the $300 mark for the first time and be back at all-time highs.
The bullish outlook echoed HSBC's from the previous week when they also came out strong on McDonald's prospects for 2024. They called it a top restaurant stock, rated it a Buy, and gave shares a price target of $317. For those of us on the sidelines who are looking to freshen up portfolios, this backing from two heavyweight analysts counts for a lot.
One of the critical elements driving McDonald's bullish outlook is its vast global presence, which not only diversifies risk but also constantly cements its brand visibility worldwide. Coming up behind this then is an aggressive digital transformation strategy that has been paying dividends in recent years, as well as a management team keen to stay at the forefront of innovation.
It was only last month that McDonald's leadership announced a strategic partnership with Google Cloud, telling investors they want to leverage cutting-edge cloud tech and artificial intelligence (AI) solutions globally, which will boost automation and drive innovation in its restaurants. This will enable managers to identify and implement profitable strategies while minimizing business disruptions swiftly.
Strong outlook
Also central to McDonald's future growth is the development of a digital ecosystem targeted to boost both sales growth and margin expansion. Historically, the company has demonstrated a resilient revenue model, largely attributed to its robust franchising strategy - approximately 95% of its locations are franchised. This model has also fortified McDonald's during economic downturns, where, as mentioned above, its value and affordability become significant assets.
With shares on the verge of crossing $300, you can't help but feel a new chapter is about to begin for the home of the Big Mac. All that being said, it's worth pointing out that the recent rally has been so one-sided that the stock's relative strength index (RSI) reading is starting to look a little warm. Having been as high as 82 last month, it's currently residing around 70 - keep in mind that the further it goes beyond 70, the more overbought it is.
Some profit-taking or consolidation in the coming sessions wouldn't be the worst thing in the world, as it would give shares a breather and allow them to start the next phase of the rally without any baggage. As we said last week, a red-hot reading can often be a reason to be cautious, but such is the buying momentum flooding back into stocks now, including into McDonald's, that the near-term outlook remains exceedingly bullish.
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