6 Takeaways From Longbow's Conversation With McDonald's Franchisees

Current consensus estimates calls for McDonald's Corp MCD to report a 2.3-percent domestic same-stores sales growth in the fourth quarter, but Longbow's first-hand checks with franchisees suggests the potential for outperformance.

The Analyst

Longbow Research's Alton Stump maintains a Buy rating on McDonald with a $194 price target.

The Thesis

Stump's surveys and conversation with McDonald's U.S. franchisees suggests the chain could show a same-store sales growth of 2.5 percent to 3 percent in the fourth quarter, the analyst said in a note. Outperformance in the quarter is likely to be result in multiple expansion in McDonald's stock and be viewed "positively by most investors."

Here are the six takeaways from the conversations:

1. On a two-year stack, same-store growth in the fourth quarter accelerated from 6.5 percent in the prior quarter to 7-7.5 percent.
2. Comps improved to the 3-3.5 percent range in the bottom half of the fourth quarter thanks to an easier year-over-year comparison.
3. The Triple Stack breakfast launch contributed an estimated 50- to 100-basis point boost to same-stores ales over the last seven or eight weeks in the fourth quarter.
4. The two-item mix and match for $5 deal again includes Quarter Pounder burgers and saw an impressive start.
5. A signature international burger of the month launch in early 2019 is likely to replace current existing Signature items.
6. The any size coffee for $1 promotion resulted in stable year-over-year breakfast sales in the fourth quarter versus a 100- to 200-basis point decline in breakfast revenue in the first three quarters of 2018.

Price Action

Shares of McDonald's were trading higher by 1.5 percent at $180.96 Monday afternoon.

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