McDonald's stock could beef up your portfolio in a 2023 recession: analyst

McDonald's (MCD) stock could add a little heft to your portfolio's waistline in 2023 should the U.S. enter a recession.

That's the vibe from long-time Jefferies restaurant analyst Andy Barish.

"We view McDonald's as the best defensive/offensive play in restaurants given a looming recession but also opportunity to take [market] share," Barish said in a new client note Wednesday. "4Q likely to see continued strong U.S. demand trends and reset margin expectations (after 3Q) achievable, in our view. Through 2024, we think brand relevancy, led by value and convenience, to support same-store sales /profitability outperformance vs peers."

Barish lifted his price target on McDonald's to $315 from $305, which assumes about 18% upside from current levels.

Shares rose slightly in pre-market trading.

The bullish 2023 call on "Mickey D's" comes amid a somewhat surprisingly strong stretch of sales this year as the fast-food chain capitalizes on catchy promotions (like the adult Happy Meal) and continues to improve its food quality.

Analysts also say McDonald's has benefited from increased mobility in 2022 as consumers venture back outside more post-pandemic.

And the company's stock price performance in 2022 underscores all of that:

  • McDonald's: -0.3%

  • S&P 500: -19.8%

  • Dow Jones Industrial Average: -10.8%

  • Papa John's (PZZA): -36%

  • Domino's Pizza (DPZ): -37%

  • Yum! Brands (YUM): -9.6%

Here's the most important part of Barish's call on the Golden Arches stock:

"Historical outperformance during recessionary periods. In 2008-2009, all restaurant categories saw same-store sales negatively impacted but McDonald's US same-store sales outperformed the quick-service restaurant (QSR) segment average by +380 basis points and the total industry average by +700 basis points. McDonald's also continued to outperform peers in the following early cycle years. QSR margins on average were stable in 2007 and then significantly improved in 2008 given very robust trends at McDonald's and with more brands shifting to asset-lite. However, excluding McDonald's, the segment saw modest margin declines in 2007 and 2008, totaling about 90 basis points cumulatively. We expect McDonald's to best weather the storm against margin pressures once again and model co-owned restaurant level margin, franchised margin, and overall operating margin expansion in 2023 and 2024.

"We attribute historical outperformance to McDonald's strong brand relevancy i.e. value, food appeal, and convenience, which allows it manage trade-down and take share from other fast food and likely fast casual brands. In 2023-2024, we expect solid U.S. same-store sales of 3.6%/2.0%, supported by pricing carryover and momentum in digital, loyalty, delivery, drive-thru, marketing, chicken platform, core menu, and value."

An employee serves french fries in a reusable container at a McDonald's restaurant in Levallois-Perret, near Paris, on December 20, 2022. - From January 1, 2023, within the framework of the anti-waste law, fast food restaurants must use reusable dishes for on-site orders. (Photo by JULIEN DE ROSA / AFP) (Photo by JULIEN DE ROSA/AFP via Getty Images)

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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