McDonald’s Corp. (MCD, Financial) could deliver an improving stock performance after its 4% rise over the past 12 months.
The fast-food restaurant’s investments in new technology and the increasing popularity of its delivery service could catalyze investor sentiment towards it over the long term.
Voice technology
McDonald's acquired voice technology company Apprente in the third quarter. Apprente uses artificial intelligence to understand and respond to human speech. Its technology will be used in McDonald’s drive-thrus to replace the need for human staff members to interact with its customers. This could lead to a more efficient ordering process that is simpler and more accurate.
The chain is set to widen its use of voice technology across its restaurants. This may mean that it requires fewer staff members, which could reduce its labor costs and may increase its profitability over the long run.
Delivery
The business has increased its number of delivery partners in markets such as Italy, Canada and Russia. This widens its appeal to customers who are loyal to specific apps, and also expands its delivery coverage to areas where its existing delivery partners do not have a presence.
McDonald's expects its delivery sales to account for 4% of its total global sales in 2019. This suggests there is room for delivery revenue to grow. This could catalyze its overall financial performance, since the average amount spent by its delivery customers is around twice that of its customers who visit one of its restaurants.
Cross-selling opportunities
McDonald’s is implementing new technology that makes suggestions on which products its customers may wish to purchase. The technology uses a range of factors to determine its suggestions, including time of day, weather and which items have been popular with other customers. This could increase the company’s sales per customer through providing cross-selling opportunities.
The technology is currently used in over 9,500 of the company’s drive-thrus in the U.S. McDonald’s expects it to be rolled out to all of its U.S. locations by the end of 2019. The business intends to improve the technology to include a greater amount of personalization based on its customers’ previous orders. This may make the technology increasingly relevant and useful to consumers.Â
Potential threats
The company’s decision to fire CEO Steve Easterbrook in early November could create uncertainty among its investors. He successfully turned McDonald’s financial performance around since his appointment in 2015. The company’s new CEO, Chris Kempczinski, may seek to make changes to the strategy he implemented, which could cause investors to demand a larger margin of safety for its stock.
In addition, the quick-service restaurant sector is facing rising labor costs that could hurt their profitability. Increasing minimum wage rates across the country could push McDonald’s costs higher at a time when consumer confidence has weakened.
The company’s sales prospects could be boosted by its ongoing restaurant modernization program. It has refurbished around 1,500 of its locations in fiscal 2019, and plans to complete 2,000 projects by the end of the year. This could improve the dining experience of its customers, and lead to an increasing number of visits per customer to its restaurants.
Additionally, McDonald’s has plans to offer promotional items to drive footfall to its restaurants. In the third quarter, for example, one-off items such as Spicy McNuggets and double quarter-pound burgers proved popular among customers. Similar promotions could have a positive impact on its future sales and help the company to overcome weak consumer sentiment.
Outlook
Market analysts forecast that McDonald’s will deliver an 8% increase in earnings per share in fiscal 2021. Its forward price-earnings ratio of 24.7 may not be cheap, but the company’s growth strategy suggests it has investment appeal.
Disclosure: The author has no positions in any stocks mentioned.
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