McDonald’s basking in 2021 analyst optimism, while some analysts see rough road ahead for pizza chains

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McDonald’s basking in 2021 analyst optimism, while some analysts see rough road ahead for pizza chains


McDonald’s Corp. shares
MCD,
+0.46%

were upgraded to outperform at Oppenheimer, with optimistic analysts pointing to the fast-food giant’s upcoming loyalty-program launch and its marketing potential, including additional celebrity partnerships.

Oppenheimer has a $240 price target on McDonald’s shares, or about 13% above their current price.

This is the first time since 2012 that Oppenheimer has rated McDonald’s stock outperform.

Analysts note that McDonald’s stock has underperformed lately, declining 6% over the past three months while the Dow Jones Industrial Average
DJIA,
+0.69%

has gained 9.8%.

However, the company has plenty of factors working in its favor. McDonald’s has collaborated with musical artists Travis Scott and J Balvin on meals that drove sales and use of the app.

And, as the chicken-sandwich wars continue, McDonald’s is set to launch a new Crispy Chicken Sandwich on Feb. 24.

Yum Brands Inc.’s
YUM,
-0.76%

brand KFC announced that it will launch a new chicken sandwich in select markets on Thursday after tests in Florida. The sandwich is to go nationwide by the end of February.

Read: McDonald’s, Shake Shack among the restaurant chains kicking off 2021 with menu additions

McDonald’s also stands to make gains abroad.

“As global economies recover, particularly in Europe, this dynamic represents a powerful catalyst within McDonald’s financial model,” wrote Oppenheimer analysts led by Brian Bittner.

“This is further emphasized by the larger amount of co-owned stores internationally” — it put the figure at 2½ greater than co-owned units domestically — “which exposes the financial model to improving store-level margins as international sales recover. “

Oppenheimer downgraded rival Wendy’s Co.
WEN,
-2.00%

to perform from outperform.

“We remain upbeat towards a continuation of strong fundamentals — particularly as Wendy’s talented management team builds upon last year’s successful breakfast launch,” analysts said.

See: From a KFC-themed Lifetime movie to a Taco Bell resort: Why Yum Brands’ over-the-top marketing stunts work

“However, following our deep-dive analysis, we struggle to identify drivers for financial upside to the consensus model in [1921–22] or uncover new catalysts to enable valuation expansion.”

MKM Partners raised a couple of red flags, and lowered price targets, in the pizza sector.

Pizza-chain stocks held up during the pandemic thanks to their existing reliance on digital technology for ordering and businesses based heavily on delivery rather than dine-in service.

MKM rates Papa John’s International Inc.’s stock
PZZA,
+0.34%

neutral with a $91 price target, down from $93. And Domino’s Pizza Inc.
DPZ,
-0.44%

is rated neutral with a $440 price target, down from $445.

Papa John’s has gained 47% over the past year while Domino’s has rallied 32.2% for the period.

Yum Brands’ Pizza Hut chain has been undergoing a shift from dine-in to takeaway and delivery, which analysts say helped the company in 2020 and should continue to do so in the coming few years.

“The pizza players will not benefit from the gale force tailwinds of easy comparisons and might be hampered by optimism from the vaccine rollout, as it increases the likelihood of greater mobility,” wrote analyst Brett Levy.

“However a contactless and digital world should persist, even as we inch towards normalization. We do not expect the pizza cohorts to be forgotten by consumers, but admit 2021 will be a challenging and uncertain year.”



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