McDonald’s Corp (NYSE: MCD) is up 23% in the stock market this year versus Starbucks Corporation (NASDAQ: SBUX) at about 12%. But Hightower’s Stephanie Link is convinced the burger company is still a better pick than the coffee chain.
Link’s remarks on CNBC’s ‘Halftime Report’
Link agreed that McDonald’s is not cheap at current levels but said Starbucks was even more expensive. Making her case for MCD on CNBC’s “Halftime Report”, she said:
McDonald’s trading at 27 times versus Starbucks at 34 times. McDonald’s has done a really good job in terms of execution, menu simplification, drive-thru, digital, delivery options. It acts like a consumer staples stock. I like the steadiness that offsets some of the cyclicality that I have in my fund.
Other reasons she likes McDonald’s include $4.3 billion in cash that recently prompted the company to reinstate its dividend and buyback programme. It partnered with IBM to automate its drive-thru lanes in October.
MKM Partners’ Brett Levy disagrees
Link’s outlook, however, differs greatly from Brett Levy. The MKM Partners’ analyst on Tuesday upgraded Starbucks to “buy” and raised his price target to $130 that represents an about 15% upside from where the stock closed on Monday.
Previously, Levy had a PT of $115 on SBUX. Starbucks is down nearly 10% from its year-to-date high in July, which he sees as a buying opportunity.
In late October, Starbucks said it will spend $1.0 billion to offer better wages to partners and a better overall experience to customers. The investment, Levy agreed, could weigh on fundamentals in the short-term but positions Starbucks well to emerge as a long-term winner.