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Coca-Cola (KO) vs. McDonald’s (MCD): Which stock is a better buy?

Analysts have been cautious in their earnings forecast for this year after statistics showed that S&P 500 earnings declined in 2019. The deteriorating scenario, wherein the market is going through an unprecedented crisis, indicates that the worst is not yet over for Wall Street.

The covid-19 outbreak has not spared anyone, including fast-food giants McDonald’s (NYSE: MCD) and Coca-Cola (NYSE: KO). The companies recently joined the fight against the epidemic by changing their slogans in select areas to create awareness on the importance of social distancing.

Being the leaders in their respective fields, the firms have been in a successful partnership for several decades, starting from the launch of McDonald’s first outlet. When it comes to challenges, both companies face the tough task of adapting to changing customer tastes and growing awareness against ‘unhealthy’ eating habits.

The long-term prospects of Coca-Cola and McDonald’s would depend on the effectiveness of their revised strategies, focused on retaining customer-base and maintaining market share.

Fundamentals Matter

The blue-chip firms enjoy strong fundamentals and have managed to remain investors’ favorites by creating handsome shareholder value. There is no doubt the current lows would encourage many potential buyers to invest in the stocks. The majority of analysts following the companies see the dip in valuation as an opportunity. It needs to be noted that Coca-Cola gained at a faster rate in the past twelve months.

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The cheaper among the two is Coca-Cola, which would make it more attractive to customers, especially in these times of uncertainty. Though the company has warned of missing its 2020 estimates, in response to the market turmoil, the favorable valuation makes it a good bet. Moreover, the company has a healthy cash flow, which helped it hike dividend on a regular basis.

Difficult Times

On the contrary, McDonald’s recovery from the present crisis will be sluggish due to the restaurant-based business model. Going forward, the company would be using most of its cash to support the franchise network affected by store closures, thanks to the social distancing campaign in key markets, including the US and China.

Quarterly Performance

At $0.44 per share, Coca-Cola’s fourth-quarter earnings were flat, while revenues rose in double digits to about $9 billion. McDonald’s adjusted earnings came in at $1.97 per share in the most recent quarter, which is slightly above analysts’ estimates. Revenues moved up to $5.35 billion and topped the Street view.

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When the market crashed last month, the inevitable happened and Coca-Cola’s shares nosedived from an all-time high of $60.13, where it had stayed for only a short period. This week, however, the stock bounced back from the five-year low and is on the recovery path.

McDonald’s traded slightly above $166 on Wednesday. The stock’s movement in the past few weeks has been pretty similar to that of Coca-Cola. After hitting a new low last month, it has started picking up. McDonald’s lost 16% since the beginning of the year.

Categories: Analysis Consumer
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