McDonald’s stock has performed well in 2019, and while the company’s third-quarter sales might not come in as strong as some bulls hope, J.P. Morgan thinks the fast-food giant is still worth buying.

The back story. McDonald’s shares (ticker: MCD) have risen 18% year to date, just trailing the S&P 500 ’s 2019 rally. Fast-food stocks as a whole have done well this year, but McDonald’s has also reported strong earnings, and recently raised its dividend. The company has moved quickly to embrace technology in its restaurants, and has made investments in artificial intelligence that analyst think will pay off in the future. Mobile-ordering and delivery trends are another area of focus, which some think will give McDonald’s a major advantage over rivals. It is also testing faux meat alternatives, using burger patties from industry darling Beyond Meat (BYND).

What’s new. On Tuesday, J.P. Morgan analyst John Ivankoe reiterated an Overweight rating and $230 price target on McDonald’s. Yet he warned that third-quarter comparable sales could come in below consensus estimates, based on his recent research, which has shown “negative same-store sales traffic despite what is otherwise solid underlying fundamentals.”

Indeed, strong unemployment and small wage gains have benefited the quick-service restaurant (QSR) sector as a whole. Yet recent traffic trends seem to reinforce Ivankoe’s thesis that independent restaurants are taking market share from chains, “although this is difficult to articulate against the truly scale-driven QSR industry with their low-cost product offerings, convenience, and speed.”

Looking ahead. In this sense, McDonald’s may be its own worst enemy, Ivankoe wrote. “McDonald’s contributed significant scale to [ Uber Technologies ’ (UBER)] US UberEats platform, and UberEats in turn used that delivery network to add thousands of restaurants that compete effectively against McDonald’s—and any QSR—with ease of use on their app, if not delivery times or price.”

That of course isn’t ideal for McDonald’s, but as Ivankoe’s bullish rating suggests, he thinks that the company is a good bet longer term, even if he tweaked his third-quarter comparable-sales estimate down to 5% from 6%. He thinks that the company’s investment in technology will help increase customer spending, as could a potential loyalty program at some point in the future.

McDonald’s shares were down 2.6% to $209.06 Tuesday morning. The Dow Jones Industrial Average was down 0.6%.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.