Categories Analysis, Consumer, Retail

What makes McDonald’s (MCD) a better investment than PepsiCo (PEP)

McDonald’s (NYSE: MCD) has remained a market leader in the American fast-food industry for long, surviving the many headwinds the market witnessed in the past. Another brand that is equally popular among fast food lovers is PepsiCo (NASDAQ: PEP), which has global presence and enjoys a massive market share. While both are highly sought-after brands, they don’t look similar when approached from an investment perspective.

Related: McDonald’s Q4 2019 Earnings Conference Call Transcript

After making a strong recovery from the recent lows, McDonald’s shares last month traded close to the record highs seen in mid-2019. However, the momentum waned later and the stock lost about 10% last week alone as markets across the world took a beating following the coronavirus outbreak. The downtrend is expected to continue in the coming days.

Buy MCD?

It needs to be noted that 2019 was a relatively weak year for McDonald’s, which experiencing muted sales growth. The burger giant is probably set for a rebound after the uncertainty eases and market stabilizes. Encouraged by the positive sentiment and considering the drip in price, most analysts recommend buying the stock.

McDonald’s (MCD) beats Q4 revenue and earnings estimates

Pepsi’s stock, which has been following a pattern that is almost similar to that of McDonald’s, was no exception when the markets were hit by the epidemic. The stock peaked early February, before entering a downward spiral that continued since then. It is true that Pepsi has been able to limit the impact of customers’ growing aversion for soda-based drinks by promoting its Frito-Lay and Quaker oatmeal businesses. At the current prices, Pepsi’s stock is cheaper than that of McDonald’s.

Long-term Value

Yet, when it comes to creating long-term value for shareholders, McDonald’s seems to have an advantage compared to Pepsi, which has long been playing second fiddle to Coca-Cola (KO). Market Watchers, in general, have assigned hold rating to the soft-drink maker, which has hiked dividends consistently for several decades. But, McDonald’s has an equally impressive dividend history that makes it a favorite among income investors.

Also read: PepsiCo Q4 2019 Earnings Conference Call Transcript

McDonald’s ended 2019 on a promising note, reporting double-digit rise in earnings and decent sales growth for the December quarter, which marked an improvement from the preceding quarters. Last month, a report from Pepsi showed that fourth-quarter earnings dropped 2% year-over-year to $1.45 per share despite a 6% revenue growth, a trend that continued throughout the year. That points to the stress on profitability, when compared to 2018.

Growth Driver

Meanwhile, the market will be looking for cues on the prospects of McDonald maintaining decent revenue growth this year and beyond, in view of the hectic re-franchising activities and last year’s relatively weak performance. Well, it seems things are shaping up in the company’s favor, given its aggressive technology adoption and growing partnerships. Last year, McDonald’s clinched several key deals, including the acquisition of AI technology startup Apprente.

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