Services

Goldman Sachs Thinks This Out-of-Favor Sector Has Huge Upside Potential for 2021

McDonald’s

The fast-food giant continues to revamp both stores and the menu, and it is a solid pick for more conservative accounts. McDonald’s Corp. (NYSE: MCD) is the world’s leading global food-service retailer with over 39,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local businesspersons.

The company has built a product pipeline, including a new chicken sandwich, a McPlant line and follow-on celebrity promos. Goldman Sachs feels the key driver of the McDonald’s story will shift to a technology scale that competitors will struggle to replicate. This tech evolution is supporting a wave of consolidation, while it creates pressure on small and mid-tier players.

The analysts said this about the fast-food giant:

We believe that McDonalds will benefit broadly from economic re-openings in 2021, and the company’s investments in technology, a renewed marketing strategy, loyalty, and menu innovation will drive share gains in the industry. We model fiscal year 2021 and 2022 same-store-sales of 16.1%/4.2% (versus Consensus 13.6%/4.1%) and unit growth slightly ahead of Consensus, which drives our fiscal year 2021 and 2022 EBITDA estimates +3.0%/+3.5% versus consensus estimates.

McDonald’s stock investors receive a 2.42% dividend. Goldman Sachs has a $237 price target, while the consensus target is higher at $241.82. The shares were last seen on Wednesday at $213.63.

Starbucks

Shares of this retail giant have traded down some recently and are offering a very solid entry point. Starbucks Corp. (NASDAQ: SBUX) operates as a roaster, marketer and retailer of specialty coffee worldwide. Its stores offer coffee and tea beverages, packaged roasted whole bean and ground coffees, single-serve and ready-to-drink coffee and tea products, juices and bottled water.

The company also licenses its trademarks through licensed stores, and grocery and national foodservice accounts. The company offers its products under the Starbucks, Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange, Ethos, Starbucks VIA, Seattle’s Best Coffee, Frappuccino, Starbucks Doubleshot, Starbucks Refreshers and Starbucks Discoveries Iced Café Favorites brand names.

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