McDonald's (NYSE:MCD) is due to report earnings on Monday in what is expected to be a difficult challenge to meet last years's strong quarter that included the introduction of All-Day Breakfast.
Analysts anticipate the company will disclose revenue of $6B and EPS of $1.41, although it's the read on U.S. comparable sales that could send shares up or down. The restaurant chain is seen posting a -1.4% U.S. comp for the period.
The company's ability to use technology initiatives (kiosks, mobile ordering) and refranchising efforts to help counter wage increases is also viewed as critical.
Guggenheim on MCD: "While we continue to have a favorable long-term bias to McDonald’s for the strategic turnaround it has mounted, we see limited near-term upside at its current valuation. We anticipate hearing more about McDonald’s modernization campaign, refranchising and an update on the capital return program when McDonald’s provides 2017 guidance."
Shares of McDonald's have outperformed the S&P 500 Index and S&P Retail ETF since the U.S. election.
Goldman Sachs issues its 2017 outlook on the restaurant sector. Some key trends that GS thinks need to be watched are posted below.
Consumer spending: Health care and energy costs are creating headwinds to spending. The GS discretionary cash flow model shows a drop to a 3.9% pace from 4.4%.
Wages: "Higher minimum wages as a result of legislation continues to remain a headwind for the industry, with an additional 18 states implementing minimum wage increases that took effect 12/31/16 of 1/1/17. We estimate this will add an additional 70bps of YoY pressure to the average national minimum wage."
Wallet market share: Some benefits for the sector are seen from wallet share gains, although the at-home spending category needs to be watched closely.
Segment shifts: We expect full service chains to continue lagging the industry by 4-5% (consistent with the past three years). We view fast food more favorably, with convenience/value mitigating secular headwinds (only a 2%-3% headwind vs industry), and we also prefer companies with exogenous sales drivers like to-go or delivery.
Unit growth/inflation: Inflation is expected to increase the cost of adding units and act as an ongoing headwind to returns on maintenance capex/remodel spending.
Nomura estimates U.S. comparable sales at McDonald's (MCD) will fall 1.2% in Q4 based off a survey of franchisees. The firm's prior forecast was for a 0.5% drop.
Analyst Mark Kalinowski sees Q1 U.S. comparable sales of -1.9% vs. -0.6% consensus view.
On a technical note, Kalinowski writes "we want to be mindful that Q1 2017 contains one less day in it than Q1 2016 did for McDonald's, as it laps February 2016's leap day — this factor should hamper McDonald's Q1 2017 same-store sales by about a full percentage point."
Nomura keeps a Buy rating on MCD and trims its price target to $136.
McDonald's (NYSE:MCD) is down 2.06% amid some controversy in Italy after the company opened a restaurant just outside Vatican City.
Bloomberg notes that today's action has sent McDonald's to below its 200-day moving average - a threshold seen as significant to technical traders.
Earlier today, a positive analyst note on Starbucks took a subtle swipe at McDonald's by predicting SBUX's market cap would rise to the largest in the sector. For that to happen, SBUX would have to bridge a gap of almost $19B in market cap.
A McDonald's (NYSE:MCD) has opened in the Vatican, despite protests from locals and top clerics.
The branch is located just meters from St. Peter's Square and occupies the bottom floor of a building that is also home to several senior cardinals .
According to La Repubblica, McDonald's will pay the Administration of the Patrimony of the Apostolic See - basically, the Vatican's property supervisor - a monthly rent of €30,000 for the 538 square-meter space.
The restaurant sector heads into 2017 with plenty of uncertainty as the impact of a new administration is hard to quantify. In general, operators in the U.S. have felt pressure from higher labor costs and soft traffic trends, although a post-election surge in consumer confidence bodes well.
A few restaurant sector morsels are posted below.
Top performers of 2016: RCI Hospitality Holdings (NASDAQ:RICK) +79%, Arco Dorados (NYSE:ARCO) +73%, Jack in the Box (NASDAQ:JACK) +49%, Domino's Pizza (NYSE:DPZ) +48%, Biglari Holdings (NYSE:BH) +48%.
Worst performers of 2016: Bravo Brio Restaurant Group (NASDAQ:BBRG) -58%, Noodles (NASDAQ:NDLS) -56%, Ruby Tuesday (NYSE:RT) -40%, One Group Hospitality (NASDAQ:STKS) -26%, Habit Restaurants (NASDAQ:HABT) -25%.
Lowest forward P/E ratios: One Group Hospitality 8.50, RCI Hospitality 10.24, DineEquity (NYSE:DIN) 12.30, Bloomin' Brands (NASDAQ:BLMN) 12.57, Brinker International (NYSE:EAT) 13.21.
Burger King and Tim Hortons will become the latest fast food chains to switch to chicken free of vital antibiotics.
The companies will change in their U.S. stores next year and in Canada in 2018, according to their owner Restaurant Brands International (QSR -0.7%).
McDonald's (MCD -0.3%) had already removed antibiotics important to human medicine from its chicken supply, and Wendy's (WEN -0.6%) said it would quit by 2017.
About 70% of antibiotics important to fighting human infections are sold into meat and dairy production, but scientists are growing concerned that overusing the drugs is contributing to the creation of antibiotic-resistant "superbugs."
Fitch expects market share to shift in the restaurant sector in 2017.
The research firms forecasts food away from home sales to increase 4% next year vs. 5% growth in 2016.
"Even as the job market improves, consumers are looking for relatively low price points and the convenience to order online when they eat away from home," says Fitch director Carla Norfleet Taylor.
"With persistent food price deflation, deal promotions will likely be a tactic restaurants use to get people in the door," she adds.
Fitch thinks Starbucks (SBUX -0.4%) and Darden Restaurants (DRI -0.8%) will gain market share due to their strong positions in coffee and to-go, respectively. McDonald's (MCD +0.1%) is seen losing U.S. market share as specialty burger competitors continue to rise and Brinker International's (EAT -1.6%) high exposure to energy-dependent markets is seen as a negative.
Cowen delivers some good news for the quick-service restaurant sector with its forecast that ground beef prices could fall 10% to 15% between 2018 and 2020.
The investment firm warns that promotional pressure due to competition could pull at margins from the other direction.
Cowen's top two QSR picks are Jack in The Box (NASDAQ:JACK) and Yum Brands (NYSE:YUM), according to Bloomberg. McDonald's (NYSE:MCD), Wendy's (NYSE:WEN) and Sonic (NASDAQ:SONC) also stand to benefit from a drop in ground beef prices.