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McDonald's Biggest Threat? Chick-fil-A, According To Nomura

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McDonald's Biggest Threat? Chick-fil-A, According To Nomura
  • McDonald's Corporation (NYSE: MCD) have risen 4.8 percent year-to-date, reaching a high of $101.10 on August 19.
  • Nomura’s Mark Kalinowski has initiated coverage of McDonald’s with a Neutral rating and price target of $103.
  • Although the company’s planned menu and All-Day Breakfast initiatives could drive upside to the stock, Kalinowski expressed concerns regarding the competitive threat posed by Chick-fil-A.

Analyst Mark Kalinowski explained that McDonald’s has been struggling over the past few quarters due to weak same-store sales, brand identity issues and a “tepid response” to its menu innovation efforts.

Kalinowski believes that Chick-fil-A “poses a greater, longer-term threat as it expands into new markets, capturing share with its higher-quality offerings,” while also expressing concerns regarding labor issues and rising costs for franchises acting as additional headwinds.

Related Link: Credit Suisse Is 'Lovin' It' At McDonald's

Over the last 10 years, Chick-fil-A has moved from being at the 19th position in the ranking of U.S. quick service restaurants to being at the 8th position, as measured by sales. Kalinowski believes that this privately held company could become the fourth-largest restaurant chain in the US by 2020.

On the other hand, with same-store sales in the negative for McDonald’s through seven consecutive quarters, the company has been making efforts to improve its menu quality and has rolled out the much awaited All-Day Breakfast.

“It is also experimenting with cost-saving order kiosks, moving customers away from the counter and into the digital world,” the Nomura report stated, while adding that these efforts have so far failed to “outweigh the downside threats facing the company.”

Latest Ratings for MCD

DateFirmActionFromTo
Apr 2020UBSMaintainsNeutral
Apr 2020Wells FargoMaintainsOverweight
Apr 2020BTIGMaintainsBuy

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