McDonald's Corp. stock price hit an all-time high as Wall Street reportedly cheered the replacement of cashiers with kiosks.
Cowen says McDonald's will upgrade 2,500 restaurants to its "Experience of the Future" technology by year-end, which includes digital ordering kiosks, CNBC reported.
The firm also raised its rating on McDonald's to outperform from market perform and price target for the shares to $180 from $142.
McDonald's shares rallied 26 percent this year through Monday compared to the S&P 500's 10 percent return. Near midday McDonald’s shares were at $154 after earlier hitting $ 155.28.
Andrew Charles from Cowen cited plans for the restaurant chain to roll out mobile ordering across 14,000 U.S. locations by the end of 2017, CNBC explained.
"MCD is cultivating a digital platform through mobile ordering and Experience of the Future (EOTF), an in-store technological overhaul most conspicuous through kiosk ordering and table delivery," Charles wrote in a note to clients Tuesday. "Our analysis suggests efforts should bear fruit in 2018 with a combined 130 bps [basis points] contribution to U.S. comps [comparable sales]."
The analyst raised his price target for McDonald's to $180 from $142, representing 17.5 percent upside from Monday's close. He also raised his 2018 earnings-per-share forecast to $6.87 from $6.71 versus the Wall Street consensus of $6.83.
"MCD has done a great job launching popular innovations within the context of simplifying the menu, while introducing more effective value initiatives that have recently begun to improve the brand's value perceptions," he wrote.
Meanwhile, a tradeoff between time and taste looms large for McDonald's as it works to win back business lost to rivals.
The introduction of cooked-to-order, quarter-pound burgers made with fresh beef is part of the chain's attempt to improve food quality. Announced in March, the new sandwiches are already in selected test markets and are expected to be served in all U.S. stores by mid-2018, Reuters reported.
But the success of the initiative may well hinge on satisfying important but impatient customers: speed-minded drive-through patrons who account for 70 percent of the firm's U.S. revenue.
An on-demand Quarter Pounder takes about a minute longer to land in a customer's hands than does the original sandwich, according to restaurant managers and analysts, even though fresh beef fries up faster than frozen patties. That's because grilling begins only after a patron orders. Traditional Quarter Pounders were often cooked up in batches ahead of time.
Every second counts in the fast-food business. McDonald's drive-through speeds already lag those of some major competitors, according to one widely watched survey. McDonald's does not share such data, but company representatives told Reuters earlier this year that service times have slowed.
Still, company executives are bullish on prospects for the popular Quarter Pounder, which accounts for about one-fourth of McDonald's U.S. burger sales. At an investor conference last month, Chief Executive Steve Easterbrook said the changeover has created fewer complications than expected and that restaurant operators are on board.
Some industry veterans, however, are skeptical. Richard Adams, a former Southern California McDonald's franchisee-turned-consultant, says convenience is paramount for the chain's patrons, who may go elsewhere if speed deteriorates.
"Any time the cooking process begins after the customer orders, the service time will be slower," Adams said.
The fresh-beef initiative comes as pressure builds on McDonald's kitchens.
Adams says restaurant crews already are juggling trickier menu items thanks to the recent national launch of McDonald's new "Signature Crafted" sandwich line, which allows customers to pick their own meat, buns and toppings. "Signature Crafted" quarter-pound burgers also will use fresh beef as it becomes available nationwide.
McDonald's cooks could be further strained by the chain's embrace of self-service kiosks and mobile ordering. The technology shaves ordering times, but can create new bottlenecks by swamping kitchens at peak hours, as companies such as Starbucks Corp have learned.
FRESH VS. FAST
The revamped Quarter Pounder is the latest move by Easterbrook to modernize the 60-year-old chain and reverse four straight years of traffic declines.
It's also a direct shot at Wendy's Co., Whataburger and In-N-Out. Those fresh-burger chains are among the fast-food rivals that McDonald's says have siphoned 500 million U.S. transactions from its stores since 2012.
Easterbrook's introduction of all-day breakfast in October 2015 was a big hit and has helped lift sales. The company's stock price is up more than 25 percent so far this year.
Analysts expect the fresh-beef push, along with moves to ditch artificial ingredients in popular items such as chicken nuggets, to bolster sales by addressing consumer demand for simpler, "cleaner" and fresher ingredients.
The Quarter Pounder makeover has won early support from analysts and McDonald's franchisees in the heart of cattle country, where the product has been tested for almost two years in about 400 stores in Oklahoma and Texas.
Trouble is, the "speed of McDonald's" isn't as fast as that of many of its competitors.
The average service time at a McDonald's drive-through last year was 208.2 seconds, according to a study published by QSR magazine, an industry publication, using data from SeeLevel HX, an Atlanta-based business intelligence firm. That's well behind industry leader Wendy's at 169.1 seconds, according to the survey. Burger King, Dunkin' Donuts and KFC all beat McDonald's too.
McDonald's narrowed the gap with Wendy's by one-third from 2012 to 2016 by adding more drive-through lanes at some stores and by scrapping products such as "snack wraps," tortilla-wrapped sandwiches that proved time-consuming to prepare. Still, its average drive-through service time last year was almost 20 seconds slower than it was in 2012, according to SeeLevel HX data.
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