Subway and other restaurant stocks are struggling to maintain margins in the middle of an all-out pricing war, particularly among fast food stocks. This week, another Wall Street analyst says McDonald’s Corporation (NYSE: MCD) is on the winning side of the war.
According to Bank of America analyst Gregory Francfort, the overall U.S. quick service sandwich category is currently growing at a 2.5 percent rate thanks to 2 percent comparable-restaurant sales growth and 0.5 percent overall unit growth.
[See: 8 Ways to Satisfy a Craving for Restaurant Stocks.]
However, some companies are doing better than others. In 2017, McDonald’s grew its U.S. sales by 3.4 percent, including a 3.6 percent increase in comparable-store sales. McDonald’s even seemed to pick up steam heading into 2018, reporting global same-store sales growth of 5.5 percent in the most recent quarter. That 5.5 percent growth represented its strongest sales growth in six years.
Francfort estimates McDonald’s landed $300 million in sales from market share gains in 2017. Subway was one of the biggest losers in the category on the year, giving up an estimated $1.5 billion in market share. Together, Francfort says McDonald’s and Chick-Fil-A, which gained $1.2 billion in market share, completely offset Subway’s losses, but Francfort says McDonald’s gains are likely more directly tied to Subway’s struggles.
“In our survey from last year of 1,100 consumers, those who chose Subway from a quick service brand list of 30 chains were 1.2 times more likely to also choose McDonald’s than those who did not select Subway,” Francfort says. “If Subway sustains a 3 percent unit closure rate and posts comps of down low to mid-single digits again in 2018, it could again donate about $1 billion in share, which would support mid-single-digit comps at McDonald’s.”
News of McDonald’s stealing share from Subway comes just two weeks after UBS reported that McDonald’s has been one of the biggest beneficiaries of the downfall of Chipotle Mexican Grill ( CMG). A UBS survey found that customers who have stopped eating at Chipotle have instead chosen to eat at McDonald’s more than any other alternative restaurant.
[See: 7 of the Best Stocks to Buy for 2018.]
Francfort says McDonald’s should be able to sustain at least 4 percent same-restaurant sales growth in the U.S. and beat consensus earnings per share estimates by between 4 and 5 percent in 2018 and 2019.
Bank of America has a “buy” rating and $200 price target for MCD stock.
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McDonald’s Corporation (MCD) Takes a Bite Out of the Competition originally appeared on usnews.com
