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Are Analysts Buying McDonald's After Its Investor Day Presentation?

Jayson Derrick

  • Shares of McDonald's Corporation (NYSE: MCD) hit a new 52-week high of $114.99 on Friday.
  • McDonald's hosted an Investor Day presentation and released a press release titled "Executing The Turnaround Plan."
  • Wall Street analysts were mostly positive following the presentation, although valuation was cited as a concern by some.
  • Shares of McDonald's jumped to a new 52-week high of $114.99 on Tuesday, coinciding with its Investor Day presentation.

    The company also issued a press release titled "Executing The Turnaround Plan" and detailed a new share repurchase program, a revised refranchising initiative and a statement putting to rest speculation of a "McREIT."

    Here is a roundup of what some of Wall Street's top analysts are saying following the presentation.

    Related Link: McDonald's Not Pursing REIT, Will Raise Dividend And Bet On Refranchising Instead

    Morgan Stanley: Valuation Concerns Overshadow Management's ‘Confidence'

    John Glass of Morgan Stanley commented in a note that McDonald's management team "conveyed confidence in the momentum of the business" and it is "doing everything an investor could ask for."

    The analyst added that the company's positives include: regaining momentum in the breakfast category executing operational changes, performing a comprehensive revue, adding $10 billion in cash returns to investors, all while also reviewing other elements of its overall business strategy (i.e., refranchising goals).

    However, Glass pointed out that McDonald's valuation stands at 21x 2016 P/E, which happens to be the highest level seen since the 2000s. As such, McDonald's must demonstrate more than just a recovery in earnings per share and must "handily" outpace the 8–9 percent growth that is already baked into consensus estimates over the next two years.

    Shares remain Equal-Weight rated with an unchanged $108 price target.

    Credit Suisse: Remaining Positive On Near- And Long-Term Outlooks

    Jason West of Credit Suisse commented in a note that he came away positive on McDonald's near-term and long-term outlook, even with high expectations heading into the presentation.

    West continued that McDonald's tone during the presentation was "clearly positive" as the U.S. and key international markets continue to "build momentum." Commenting on management's decision not to pursue a REIT structure, the analyst stated this was a "decision we agree with."

    Overall, McDonald's event should prove to be "sufficient to keep investors engaged," as investors will look forward to the fourth-quarter print in January, which may provide further signs of improved same-store sales momentum.

    Shares remain Outperform rated with a price target raised to $128 from a previous $118.

    Deutsche Bank: ‘Something At McDonald's Is Changing'

    Karen Short of Deutsche Bank commented in a note that McDonald's "iconic brand" is "far from dead."

    Short noted that McDonald's culture, labor and process are changing, and more importantly, "moral is beginning to turn this slow-moving-freighter." She added that "momentum is everything" and management is implementing "Retail 101 practices" by offering customers what they have been asking for.

    Short continued that McDonald's management is starting to present a "pathway to sustainable long term momentum" as its U.S. operations are starting to show evidence of a turnaround.

    Shares remain Buy rated with an unchanged $130 price target.

    Stephens: ‘Clearer Line Of Sight'

    Will Slabaugh of Stephens commented in a note that he left McDonald's presentation with a "clearer line of sight" into key initiatives, justifying his upgrade of the stock to Overweight.

    Slabaugh noted that McDonald's actions as part of an overall "strategic overhaul" include: 1) a higher amount of store refranchising with a new long-term goal of 95 percent, 2) increased G&A savings of $500 million, 3) $10 billion in incremental debt leverage to finance cash returns to investors, 4) a decision not to pursue an REIT structure.

    Slabaugh suggested that these initiatives present investors with "compelling value" in owning the stock despite an already "somewhat full valuation."

    Related Link: McDonald's Hits All-Time High In Volatile Session

    Barclays: ‘Perfect Time'

    Jeffrey Bernstein of Barclays commented in a note that McDonald's Investor Meeting presentation was held at a "perfect time" following the third quarter's "inflection" point that lead to a "bullish management tone."

    Bernstein did however note that the greatest risk ahead is a "false sense of (premature) security," even though management was "confident" that all the underlying indications "point north."

    Shares remain Overweight with a price target raised to $125 from a previous $120.

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