The COVID-19 pandemic has dealt a severe blow to global restaurant chains. These companies suffered massive losses this year as customers stayed indoors and the pandemic forced shutdown of their operations.
But as investors are pinning their hopes on the success of vaccines and the economic reopening next year, restaurant operators are being watched closely as a barometer of consumers' willingness to resume normal lives and reopen their wallets .
] Today we shortlisted Starbucks (NASDAQ 🙂 and McDonald & # 39; s (NYSE 🙂 to see which stocks offer better value.
1. Starbucks
The popular coffee shop chain has faced strong headwinds since the outbreak of the coronavirus as Americans have changed the way they buy coffee and restaurants.
Last month, the giant reported that the same store is worldwide. sales declined 9% during the company's fiscal year, marking the third consecutive quarter of overall declines. However, that dismal sales performance has shown signs of a turnaround in recent weeks.
For example, the decline in sales has slowed since the spring, when much of the world was locked up. In the US, comparable store sales declined by 9%, exceeding expectations. Management, which has resisted for several quarters, is now convinced that the worst is over.
The chain predicts global comparable store sales will increase between 18% and 23% during the first quarter and 2021, with growth expected to be as high as 32% in China. The home recovery will be a little slower, with comparable sales in America up between 17% and 22% in the first quarter and next year.
Starbucks CEO Kevin Johnson said the following in an email:
"Our strategies are working and I am optimistic that we will emerge from the COVID-19 pandemic as a stronger and more resilient company."
But some analysts fear it may take longer for food chains to fully recover in the post-pandemic world, where some consumers are likely to change their behavior permanently and not visit restaurants. So now is not the right time to bet on the shares of the coffee chain.
Starbucks shares, after falling 36% in March, have fully recouped their losses since then. They closed at $ 98.82 on Tuesday, up more than 12% over the past month.
Despite these uncertainties, Starbucks of Seattle is working on a turnaround plan to become stronger after this global health crisis. The pandemic has forced Starbucks to rethink its central concept as a & # 39; third place & # 39; away from work and home where clients can relax.
It now plans to accelerate the rollout of its & # 39; pick-up & # 39; store concept, with smaller format locations that do not have customer seating. To make room for the new stores, which will be located in cities like New York, Boston and Chicago, Starbucks has said it will close about 400 of its traditional cafes in urban areas.
2. McDonald & # 39; s
McDonald & # 39; s, one of the world's largest fast food chains, is another restaurant stock rapidly recovering its lost ground after the pandemic. Shares are up 75% since March 18, outperforming the Index.
McDonald & # 39; s 1-Year Chart.
One reason for this strength is that MCD outperformed most other companies. restaurants during the pandemic, aided by the vast network of drive-thru locations. The company's comparable store sales were positive for the period ending September 30, benefiting from robust average check growth from larger group orders and strong at-meal performance.
Operational changes and new marketing in recent months have helped the chain regain some momentum in recent months. The company's partnership with rapper and record producer Travis Scott and a reduction in average wait times at drive-throughs, a simpler menu, the closure of most dining rooms to increase labor efficiency were some of the factors That Helped Improve Sales
With this operational strength, another important factor to consider when choosing a restaurant stock is the stability of the business when it comes to paying dividends. McDonald & # 39; s has been increasing its payout every year since 1976 when it first started paying dividends.
With a current dividend yield of 2.31%, MCD shares are now paying $ 1.29 per share per quarter after a 3% increase in October.
Bottom Line
We like both Starbucks and McDonald & # 39; s for value investors. Each has great assets and brands that should hold up during the current recession and once the pandemic is under control. At the same time, it is clear that their earnings will not return to normal until a global cure for the coronavirus is available.
For long-term investors with a horizon of five years plus, both Starbucks and McDonald & # 39; s stocks remain good bets.
