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Meaningful Change Is Underway At McDonald's, Says Stephens

Jayson Derrick

In a report published Friday, Stephens analyst Will Slabaugh detailed a recent Q&A breakfast with McDonald's Corporation (NYSE: MCD)'s management team and left with an "overall positive view" of the near- and long-term direction of the company.

Slabaugh noted that the management team was cautious not to commit to any specific initiatives, it was "abundantly clear" that "meaningful change" is underway with a sense of urgency.

The analyst said that McDonald's management made it clear its top priority is to work directly with its franchisees to "reignite" top line momentum through new initiatives that leverage the company's superior infrastructure and data. Specifically, McDonald's new "Create Your Own Taste" platform aims to provide customers with a customized experience that could mirror something closer to its "better burger" peers. In addition, McDonald's management spoke of its plans to leverage the feedback it has been receiving from the "Our Food Your Questions" engagement program.

"Given McDonald's recent struggles to satisfy such a broad range of consumers through somewhat overly aggressive (and often off-trend) product innovation, we are encouraged to see the Company's move toward a more simplified, yet customizable dining experience," Slabaugh wrote.

The analyst continued, "We are, however, somewhat skeptical for the time being on McDonald's ability to drive the majority of its same-store sales growth in the dining rooms of its stores, which we believe currently represents approximately 30 percent of sales versus the drive thru. As such, this will be a key focus of ours as we continue industry conversations."

Bottom line, McDonald's shares offer an attractive risk to reward profile given a near four percent dividend yield and material improvements in the pipeline.

Shares remain Overweight rated with an unchanged $115 price target.

Latest Ratings for MCD

Date Firm Action From To
Mar 2015 Credit Suisse Initiates Coverage on Neutral
Mar 2015 JP Morgan Maintains Overweight
Mar 2015 Piper Jaffray Downgrades Overweight Neutral

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