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Morgan Stanley 'Encouraged' As McDonald's Works On A Refresh

Jayson Derrick

John Glass of Morgan Stanley hosted McDonald's Corporation (NYSE: MCD) management team at a recent Global Consumer Conference. The analyst was "encouraged" as McDonald's management team laid out its plans to improve food quality and turnaround its operations.

McDonald's plans to change the way consumers interact with its brand through an initiative code-named "experience the future." McDonald's plans to incorporate digital ordering through mobile and kiosks, a "Create Your Taste" menu platform while improving its food quality and perceptions.

Glass notes that in 2015 McDonald's U.S. will reorganize its corporate structure and will give more marketing and promotional control to 22 regions. By doing so, McDonald's will free up national advertising for core campaigns and brand building.

Glass adds that McDonald's also plans to simplify its menu in 2015 which may have a negative impact on sales but could improve service and sales in the longer-term.

Finally, McDonald's management confirmed its 1,500 plus re-franchising target through 2016 while also confirming 2015 capital expenditure could be "meaningfully" lower than $2.7 billion targeted in 2014.

Bottom line, McDonald's initiatives are "akin to the McCafe roll out in terms of scale and costs."

Shares are Equal-weight rated with a $95 price target.

Shares of McDonald's closed Wednesday at $96.56, up 0.16 percent. Shares are down more than 5 percent over the last six months, but have started to recover since hitting a 2014 low in mid-October; shares are up 6.7 percent since October 16.

Latest Ratings for MCD

Date Firm Action From To
Nov 2014 Citigroup Maintains Neutral
Oct 2014 Barclays Maintains Overweight
Oct 2014 Morgan Stanley Downgrades Overweight Equal-weight

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