The stock market is as volatile as ever, but McDonald’s stock is one of the safest bets you can make. The fast food giant is in a position to weather the coronavirus storm and come out stronger on the other side. Their competitors, on the other hand, may begin to fall further behind.
McDonald’s (NYSE: MCD) has put in place a strategy that protects its customers and significantly scales back its operations. However, it also safeguards the company and its franchisees against the economic downturn due to COVID-19. Learn why McDonald’s is best positioned in the fast food industry once again.
McDonald’s Stock Volatility During the Crisis
Practically all fast food chains are moving into a delivery and drive-thru model instead of dine-in seating during the pandemic. Yet, McDonald’s is best suited to manage this transition.
The numbers tell you the story. While MCD stock felt the effects of the outbreak in March, it’s already beginning to recovery.
Overall, McDonald’s stock has dropped 18.54% since the beginning of March. This compares to rival Wendy’s 26.01% drop. Restaurant Brands International (NYSE: QSR), which owns both Burger King and Popeyes, has dropped 37.62% in the same period.
Why Does McDonald’s Keep Winning?
McDonald’s is an unstoppable force for many reasons. Their balance sheet and overall scale is enough to scare off many competitors. However, their true power comes in the form of refranchising.
For over five years, McDonald’s has been shifting its revenue to franchise-owned restaurants. Why is this important? For starters, franchisees produce revenue at a higher margin.
By refranchising existing company locations into franchise-owned restaurants, McDonald’s has improved cash flow drastically. And as a result, the burger giant has $898 million in cash on hand. This decision, though years ago, has put McDonald’s stock in the best position to overcome the coronavirus pandemic.
It also makes McDonald’s a surefire dividend payer. According to a CNBC report this past month, McDonald’s has suspended its $15 billion buyback program, but will payout its dividend.
“Really, for us, we just wanted to maintain maximum flexibility as we went into this crisis and be as nimble as we needed to,” CEO Chris Kempczinski said in the report. He also noted that the company’s quarterly cash dividend is a “priority” that would not be changed.
McDonald’s Focus During the Coronavirus Crisis
McDonald’s approach to the coronavirus is built around customer and employee safety. They’re keeping their restaurants open, but implementing “significant hygiene measures” as well.
They quickly encouraged all franchises to close down dine-in seating. This moves the entire business to drive-thru, take-out and delivery services. DoorDash, GrubHub and Uber Eats have all benefited with major increases in orders. These changes are being implemented by other fast food chains as well, but McDonald’s stock is seeing better results.
Healthcare workers and first responders are receiving free meals from independent franchisees across the country. Many families with children out of school are receiving free breakfasts and lunches. Moreover, they’re donating 400,000 KF94 masks to the State of Illinois Emergency Management Agency.
We’re so grateful to those who are helping fight the pandemic from the front lines and we are proud to donate 400,000 KF94 masks to the State of Illinois Emergency Management Agency. We’re all in this together.
Read more about it here: https://t.co/9LhFZ1bpN5
— McDonald's Corporation (@McDonaldsCorp) March 31, 2020
They’re also providing two weeks paid leave to any and all employees who are impacted by the virus. It’s clear that McDonald’s has a plan to continue serving its communities during this pandemic.
McDonald’s Stock is the Fast Food Standard
The fast food industry began fading in the market once the crisis hit. No one was sure what their response would be. Yet, McDonald’s led the way by acclimating quickly and it’s beginning to see the results.
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Investors are “loving it” and it’s easy to see why. Keep a close watch on McDonald’s stock as the fast food giant navigates its way through the coronavirus outbreak.