McDonald’s teases chicken sandwich to compete with Chick-fil-A and Popeye’s.
After developing a competitive crispy chicken sandwich, McDonald’s next hurdle is to find enough chickens to support demand, said Wall Street firm Stephens.
While investors were hoping for an early 2020 launch of McDonald’s new crispy chicken sandwich, Stephens forecasts the fast food chain will run into supply issues, delaying the launch.
“We believe the high-quality chicken sandwich market is a place MCD wants to become more relevant and anticipate a mid-year national launch,” sand Stephens analyst Will Slabaugh in a note to clients on Wednesday.
The so-called “chicken wars” have put pressure on McDonald’s to find a competitive chicken option for the fast-food chain to rival Chick-fil-A and Popeyes. McDonald’s tested its sandwich in Houston and Knoxville and the product was well received, said Slabaugh, along with other analysts. So much so, strong customer demand produced product shortages early on.
Chick-fil-A and Popeyes use 5 lb birds for their sandwiches and Stephens said McDonald’s uses between a 5 lb and 7 lb bird.
“It’s important here to note that there are supply realities that MCD has to deal with and simply not enough 5-lb. product to begin to supply the MCD system,” said Slabaugh. McDonald’s high volume operations make it “nearly impossible” to thaw, 24- hour marinate, and hand bread its sandwich.
“Therefore, while improvements may be made, we would expect the launch of a similar, pre-breaded product by early summer,” said Slabaugh.
Stephens raised its full year 2020 U.S. same-store sales estimates to 3.5% from 2.9% and its earnings per share estimates to $8.54 from $8.52, “primarily on an anticipated Crispy Chicken Sandwich launch.”
The firm said the crispy chicken sandwich could generate more traffic than fresh beef.
Stephens has a overweight rating on McDonald’s and a $225 per share price target. McDonald’s closed at $194.95 per share on Tuesday.
Shares of McDonald’s are up about 10% this year.
—with reporting from CNBC’s Michael Bloom.