New survey data suggests there are several trends in the American lifestyle that should be good news for restaurant stocks such as McDonald’s Corporation (NYSE: MCD). Unfortunately, after McDonald’s put up some impressive growth numbers in 2017, the market’s expectations for MCD stock may be a bit too high heading into 2018.
A new demographic survey by Bank of America revealed that age, gender, income, marital status and household size are highly correlated to the tendency for a customer to choose to eat food at a restaurant versus at home. While many of these demographics have been relatively stable over time, analyst Gregory Francfort says there are two key trends headed in the right direction for McDonald’s investors.
[See: 8 Ways to Satisfy a Craving for Restaurant Stocks.]
First, the percentage of America individuals over the age of 15 who are married has dropped from 61 percent in 1980 to just 52 percent in 2017. In addition, the percentage of U.S. households that are comprised of only one resident has risen from 23 percent in 1980 to 28 percent in 2017.
“We think marriage rates and household formation will be key drivers of the shift between food at home and food away from home sales over the next 10 to 15 years,” Francfort says.
This trend will benefit all restaurants, but Francfort says McDonald’s, which has relatively balanced customer demographics, will benefit more than companies like Chipotle Mexican Grill ( CMG), which is heavily reliant on the 18- to 29-year-old demographic.
But while McDonald’s could benefit from smaller America households in the long-term, Stephens analyst Will Slabaugh says an impressive 2017 for McDonald’s could have the market’s expectations set a bit too high for 2018.
[See: 7 of the Best Stocks to Buy for 2018.]
“To be clear, we like the direction that MCD is heading, which includes global remodel and [Experience of the Future] conversions, steadily improving quality and a more constant eye on its value offering than previous management teams,” Slabaugh says. “However, we believe mid-single-digit comp growth of recent quarters was the result of many successful initiatives coming together at once and should not be considered the norm.”
Stephens is forecasting just 2 percent U.S. same-restaurant sales growth and 2.9 percent global same-restaurant sales growth from McDonald’s in 2018 compared to consensus estimates of 3.5 percent.
Bank of America has a “buy” rating and $180 price target for McDonald’s. Stephens has an “equal-weight” rating and $170 target for MCD stock.
More from U.S. News
Mergers and Acquisitions: Top 7 M&A Targets of 2018
9 Financial Stocks to Buy for the Dividends
7 Energy ETFs to Buy for Oil’s Comeback
McDonald’s Corporation (MCD) Should Profit from Shrinking Households originally appeared on usnews.com
