At the onset of the novel coronavirus, companies like McDonald’s (NYSE:MCD) were among the worst hit for obvious reasons. Because of the infectious nature of Covid-19, going out to eat was the last thing on people’s minds. Furthermore, consumers simply didn’t trust the process of lower-wage workers handling their food in a high-stress environment. Thus, MCD stock saw a big collapse in March.
Several states have seen an unprecedented surge, causing many to halt or roll back their reopening.
Specific to McDonald’s stock, the fast-food giant was already under the gun before the case spikes over the past few days.
Earlier this month, the company announced that they will delay their reopening strategy.
Particularly, sit-down dining services is a huge question mark. Approximately 2,000 of the 14,000 “golden arches” in the U.S. had opened their doors for in-house dining. Although management hasn’t required that they move back exclusively to drive-thru or alternative deliveries, the situation admittedly doesn’t look great.
While MCD stock has jumped substantially higher from its March lows, shares really haven’t moved much since the beginning of June. It’s also down noticeably from its post-pandemic closing high of $202.65, set on June 8.
Initially, enthusiasm over a surprisingly positive May jobs report boosted the market value of MCD. However, weekly initial jobless claims have continued to number in the millions, weighing on the economic bounce-back narrative. And if state governors continue to roll back their reopening efforts, the next report could tell a different tale.
These are nearer-term concerns for McDonald’s stock. Yet they don’t tell the entire story.
The Rethink Could Be Net Positive for MCD Stock
After American families had some time to take a breather from their toilet paper hunt, many came to their senses. Although the headlines screamed doom and gloom, the statistical reality is that most people who contracted Covid-19 would live. Plus, being cooped up at home indefinitely wasn’t anybody’s idea of a good time.
Therefore, people ventured out and started reclaiming their regular routines. For millions, that meant eating out at McDonald’s. But even here, it wasn’t without some concerns.
As Business Insider noted, several fast-food restaurants, including McDonald’s, removed items from their menus. For McDonald’s, management explained the deletion as an evolution in consumer trends. In reality, the company didn’t see a point in serving food or beverage items that people didn’t want.
Now, you could look at this situation as either a glass half empty or half full. I prefer the latter. While the menu reductions indicate declining consumer demand for MCD stock, it’s also an opportunity to set up a win in the new normal.
Mainly, the American corporate icon has an organic opportunity to make itself relevant to a new generation. For several years, management has been desperately trying to appeal to millennials and younger people. However, their efforts have gone for naught. In a strange way, though, the Covid-19 pandemic can finally facilitate progress.
How? If you’ve watched the company evolve, you’ll notice that they’ve been pushing alternative and digital transactions and deliveries: curbside pickup, automated kiosks and smartphone purchases. It’s the stuff that appeals to millennials. However, with extreme competition in the space, the fast food company has had trouble getting the message across.
“Thanks” to the crisis, though, more people will start considering McDonald’s for their fast food needs.
The Normal in the New Normal
I’m confident in the above forecast because of one critical factor — McDonald’s has, in some capacity, returned to its old normal while everyone else is focusing solely on the new normal. Let me explain.
If you take a look at the McDonald’s store locations near you, chances are that if you live in a major metropolitan area, you’ll find at least one that’s open either 24 hours or for extended hours. On the other hand, several eateries have reduced their hours due to the coronavirus impact.
This gives a significant advantage to McDonald’s, and by logical deduction, to MCD stock. Because in this disjointed economic recovery, some people — such as frontline workers — find themselves working odd hours while others are operating remotely. Both factors, as well as other variables, may contribute to a consumer base that values a restaurant’s flexibility.
At this time, only a few eateries offer such flexibility. McDonald’s is one of them. Therefore, be sure to buy MCD stock on any sizable dips. This is an underappreciated story that is only getting more exciting.
— Matt McCall
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