JP Morgan: McDonald’s Guidance is “Trending Softer”

A JP Morgan analyst issued a word of warning about McDonald’s third-quarter earnings. 

This week, shares of McDonald’s fell slightly after a JP Morgan analyst questioned the company’s pending third-quarter results. Analyst John Ivankoe lowered his guidance for the company’s same-store sales and full-year guidance. 

After talking with company leadership, Ivankoe said the company’s guidance is “trending softer than we thought.” Recent McDonald’s promotions haven’t been getting the same level of attention that they normally receive. 

In spite of the forewarning from Ivankoe, the stock is up 24% from a year earlier. And Ivankoe did maintain his overweight rating and $230 price target on the stock. Listed below are a few reasons the McDonald’s momentum should continue.

McDonald’s is cashing in on the meat-free trend

McDonald’s is currently testing out a new sandwich that is called the P.L.T. This stands for plant, lettuce, and tomato and uses Beyond Meat’s signature patties. The company is testing out this sandwich in 28 different locations across Canada. 

McDonald’s decided to try out this new strategy after seeing Burger King’s success using Impossible Foods patties. Meat substitutes continue to grow in popularity and McDonald’s is probably making a good choice to get in on this trend. 

The company’s sales continue to grow

Current McDonald’s investors can take heart in the company’s record of strong sales. During the most recent quarter, McDonald’s saw its global comparable sales increase by 6.5%. 

Even Ivankoe acknowledged the company’s strong fundamentals as a reason to be optimistic about the stock. However, Ivankoe does expect the company’s comparable sales to fall to 5% but even this would be pretty solid growth.  

McDonald’s is taking advantage of third-party apps

In the past year, one of the biggest drivers for McDonald’s has been its use of third-party delivery apps. At a time when many companies are seeing their in-store traffic slow or stall, third-party delivery apps are a great way to make up for this. These apps make the company’s food even easier to access.

However, Ivankoe did issue a word of caution when it comes to meal delivery apps. Ivankoe wrote, “McDonald’s contributed significant scale to Uber’s UberEats platform, and UberEats in turn used that delivery network to add thousands of restaurants that compete effectively against McDonald’s.”