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What's Next For McDonald's After Easterbrook's Abrupt Departure?

Jayson Derrick

McDonald's Corp (NYSE: MCD) abruptly parted ways with CEO Steve Easterbrook on Sunday and represents a new topic of uncertainty for investors.

The Analysts

UBS analyst Dennis Geiger maintains a Neutral rating on McDonald's stock with a $212 price target.

Bank of America analyst Gregory Francfort maintains at Buy, $230 price target.

Piper Jaffray analyst Nicole Miller Regan downgraded from Overweight to Neutral, price target lowered from $224 to $195.

UBS: 'Pivotal Time'

Easterbrook's departure comes at a "pivotal time" in U.S. franchisee- franchisor relations, Geiger wrote in a note. The research firm's first-hand talks with franchisees focused on concerns related to the CEO changes and potential uncertainties.

Granted, new CEO Chris Kempczinski boasts the necessary experience and played a vital role in creating the "Velocity Growth Plan," overseeing delivery initiatives, among other important successful projects, the analyst wrote. Kempczinski will likely remain focused on growth priorities across the U.S. and worldwide while creating value for all stakeholders.

Joe Erlinger was also named as new U.S. President and conversations with the company suggest the executive will focus on operations and he has a grasp on how important franchisee alignment is.

Despite no expectations for a change in corporate strategy through the medium-term, the departure of Easterbrook coincides with decelerating U.S. comps, negative earnings revisions, growing competition in the breakfast segment and an overall re-rating of quick service restaurants, the analyst wrote.

See Also: McDonald's CEO Firing: Management Expert, Asset Manager On What It Means For Investors

BofA: Post 2020 Objectives

Kempczinski deserves credit for "co-authoring" the U.S. turnaround and his promotion could be seen as a "function of years of succession planning," Francfort wrote in a note. A top priority will likely be establishing post-2020 initiatives as the prior "Velocity Growth Plan" ends.

Kempczinski will have a few months to settle in as CEO and present his vision at an investor day presentation next year, the analyst wrote. Some of the critical objectives need to include revamping the Dollar 1-2-3 menu launch and pricing, a strategy to take on Chick-Fil-A in the chicken market, and overseeing continued technology and digital personalization capabilities.

Piper Jaffray: 'Disruptive' Change

McDonald's ability to "dominate" the global restaurant market or the effort behind its franchise network will not be impacted by the CEO change, MarketWatch quoted Miller Regan as saying. However, a bullish stance on the stock can't be justified as a notable CEO change in general is "disruptive and tend to not occur in isolation."

"Our experience leads us to take a more cautionary view noting the potential lack of momentum and time involved in formalizing a new team," the analyst wrote.

Elsewhere On The Street

Stephens analysts maintain an Overweight rating and $225 price target. The research firm notes a "fairly significant negative for investors" after Easterbrook's "impressive" performance. Nevertheless, the company made a good choice in tapping Kempczinski and the stock looks "attractive on the recent pullback."

Credit Suisse maintains an Outperform rating and $230 price target. The research firm says the "material pullback" in the stock is a "buying opportunity" given a deep bench of "like-minded" executives.

Barclays maintains at Overweight, unchanged $225 price target. The research firm highlights the "depth in leadership" is strong enough to sustain McDonald's status as the global fast food leader.

Price Action

Shares of McDonald's closed down 2.7% at $188.66.

Latest Ratings for MCD

Date Firm Action From To
Nov 2019 Maintains Buy
Nov 2019 Maintains Neutral
Nov 2019 Downgrades Overweight Neutral

View More Analyst Ratings for MCD
View the Latest Analyst Ratings

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