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Is This a Sign of Better Things to Come for McDonald's Stock?

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McDonald's (NYSE: MCD  ) is already a household name in about 118 countries around the world. However, the stock has been under pressure lately because of dismal sales projections for the restaurant industry at large. In fact, sales at fast-food restaurants such as McDonald's are estimated to grow less than 4% over the next 10 years, according to The New York Times. Yet, despite this tough environment, McDonald's stock could prove the bears wrong, thanks to rising comps and fresh menu innovations.

Investors are "lovin it"
The stock climbed more than 1% on Monday to $99.67, after McDonald's global same-store sales for the month of May came in ahead of expectations. The fast-food giant said comps, or comparable same-store sales, grew 2.6% globally last month. Analysts expected a 1.9% gain. Additionally, both McDonald's domestic and same-store sales in Europe exceeded expectations, with an increase of 2% in Europe and 2.4% in the U.S.

Same-store sales are important because they measure sales growth at stores that have been open for more than a year.

These results are particularly encouraging after the company's April comps, which left a lot to be desired. Nevertheless, McDonald's most recent comps prove that innovation at the menu level is working. To be sure, the stock's recent results were fueled by a renewed focus on healthy menu items including McDonald's new Egg White Delight and premium McWraps. McDonald's new Egg White Delight is a lower-calorie alternative to its popular Egg McMuffin.

New menu items breed competition
Fresh product rollouts and expanded breakfast hours at select McDonald's locations should continue to buoy sales for the company in the quarters to come. However, McDonald's isn't the only casual-dining stock that's mixing up its menu these days.

Rival fast-food chain Yum! Brands (NYSE: YUM  ) is also introducing new menu items. In a battle for consumers' breakfast bucks, Yum! Brands-owned Taco Bell recently unveiled its "waffle taco" in select Taco Bell locations in Southern California.

Breakfast is big business for fast-food chains. However, as Wendy's (NASDAQ: WEN  ) recently emphasized, it's a tough business as well. It raised the white flag recently, saying it would reduce the number of locations offering breakfast to between 300 and 400, down from about 850, according to Bloomberg.

Nevertheless, McDonald's seems to have both breakfast and menu innovation down to a science. Moreover, I suspect McDonald's stock will outperform the broader market this year as the company continues to expand its menu selections both domestically and abroad.

What the future holds 

McDonald's turned in a dismal year in 2012, underperforming the broader market by 25%. Looking ahead, can the Golden Arches reclaim its throne atop the restaurant industry, or will this unsettling trend continue? Our top analyst weighs in on McDonald's future in a recent premium report on the company. Click here now to find out whether a buying opportunity has emerged for this global juggernaut.

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Related Tickers

9/29/2016 4:00 PM
MCD $114.79 Down -0.39 -0.34%
McDonald's CAPS Rating: ***
WEN $10.61 Down -0.10 -0.93%
Wendy's CAPS Rating: ***
YUM $89.81 Down -0.41 -0.45%
Yum! Brands CAPS Rating: ****