The Street Remains Bullish On McDonald's

The Street Remains Bullish On McDonald's

McDonald's Corp MCD reported first-quarter results, which came in better than expected but management's commentary of higher expenses has the Street debating the company's upside potential.

The Analysts

Stephens' Will Slabaugh maintains an Overweight rating on McDonald's with a price target lifted from $210 to $220.

Bank of America's Gregory Francfort maintains at Buy, price target lifted from $200 to $215.

BMO Capital Markets' Andrew Strelzik maintains at Outperform, price target lifted from $195 to $210.

Morgan Stanley's John Glass maintains at Overweight, unchanged $210 price target.

Mizuho Securities' Jeremy Scott maintains at Buy, price target lifted from $204 to $215.

The stock traded around $194.55 per share at time of publication.

Stephens: Main Takeaways

McDonald's earnings report includes three key takeaways, Slabaugh said in a research report:

  1. Acceleration in the U.S. business has been confirmed and customers are more likely to spend more for the right promotion;
  2. The international business is performing at its best since the recession; and
  3. Earnings estimates for fiscal 2019 could "come in a little light" amid higher costs and a modest store-level margin pressure.

BofA: Catch-Up Mode Will Pay Dividends

McDonald's recent acquisition of Israel-based Dynamic Yield and other investments in digital suggests the company is in "catch-up mode," Francfort said. Management's move to invest a portion of its "strong" top-line performance could result in a more personalized relationship with consumers and generate longer-term returns.

McDonald's could be guilty in being slow to build out digital capabilities, but the analyst said recent strategic moves should be viewed "positively."

BMO: Cost Becoming A Frustration

McDonald's outlook remains encouraging as the restaurant chain should see higher than expected U.S. same-store sales growth for 2019. Strelzik said the international business also performed well as it showed "broad-based strength" in the first quarter.

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