McDonald’s upgraded based on strength of new menu items and the anticipated return of breakfast

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McDonald’s Corp.
MCD,
+2.62%

stock rose 2.4% in Monday trading after the fast-food giant was upgraded to buy from neutral and UBS, and the price target was raised to $240 from $230.

The stock’s rally made it the biggest gainer among Dow Jones Industrial Average
DJIA,
-0.13%

components.

Among the reasons for the upgrade, UBS cited menu innovation, including a new chicken sandwich, expected in March, and the return of spicy chicken nuggets in February.

McDonald’s has made headlines in recent weeks with a number of limited-time offers and other additions to the menu, including the return of the McRib, the coming launch of a plant-based burger called McPlant and the launch of meal collaborations with Travis Scott and J Balvin.

See: McDonald’s McRib is back, adding to the big names popping up on the fast-food chain’s menu

Analysts also anticipate that McDonald’s will turn its attention to breakfast once again as doses of COVID-19 vaccines become available.

“We expect McDonald’s will increase breakfast focus in 2021 as normalcy begins to return, customer mobility increases, and the industry day part improves,” wrote analysts led by Dennis Geiger.

“We expect potential coffee improvements and McCafe Bakery offerings as new news, while an increased marketing emphasis should support sales.”

UBS spoke recently with upbeat McDonald’s franchisees as well. Product launches were one of the reasons for optimism.

“McDonald’s franchisees note solid momentum thus far in December, with the McRib driving an acceleration in comps from November (checks suggest November trends similar to October), particularly for restaurants not offering the sandwich in recent years (~10,000 stores offered last year),” UBS wrote in a separate note.

Also: Beyond Meat and McDonald’s haven’t confirmed their work on the McPlant, which one analyst finds ‘extremely strange’

Analysts also cite investments in digital, including a loyalty program that’s expected to launch next year, and delivery.

McDonald’s has been pushing customers to its app, offering promotions that are exclusively for mobile customers.

Starting today, McDonald’s will be giving away “daily holiday deals” with a purchase of just $1, exclusively on the app. The promotion lasts until Christmas Eve, when the chain will be giving away free chocolate chip cookies, which is the company says is Santa Claus’s favorite treat.

“McDonald’s mobile app has been an important component of the brand’s digital strategy for the last several years and we expect an increased focus on driving downloads and usage (promos, celebrity deals, etc.), and capabilities,” UBS said.

“We believe McDonald’s maintains among the better paths to same-store sales outperformance in 2021 and beyond, supported by multiple initiatives and ongoing investments.”

McDonald’s isn’t the only chain putting more emphasis on digital and celebrity names.

Chipotle Mexican Grill Inc.
CMG,
+0.41%

announced that it has launched a Miley Cyrus-themed burrito based on a TikTok trend.

The “Guac is Extra but So Is Miley” burrito is available on the Chipotle app.

McDonald’s stock is up 8% for the last 12 months while the benchmark Dow Jones Industrial Average
DJIA,
-0.13%

is up almost 7% for the period.



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