Did McDonald's Deliver A Beefy Quarter? The Street Debates

McDonald's Corp MCD fourth-quarter results showed a beat on the earnings line, but U.S. same-store sales missed expectations. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Bank Of America's Gregory Francfort maintains a Buy rating on McDonald's with a $200 price target.
• Morgan Stanley's John Glass maintains at Overweight, $210 price target.
• Wells Fargo's Jon Tower maintains at Outperform, price target lowered from $206 to $203.
• Baird's David Tarantino maintains at Outperform, $196 price target.
• Raymond James' Brian Vaccaro maintains at Market Perform, no price target.

Shares of McDonald's traded at $180.59 at time of publication.

Bank Of America: International Was Strong

Francfort said McDonald's international business stood out, highlighted by a global comps of 4.4 percent. The International Lead segment (established markets like Canada and the U.K.) posted a 5.2-percent comp growth, which was encouraging amid concerns across Europe.

The U.S. business posted a 2.3-percent comp growth, which the analyst said was a "bit light" but the outlook remains favorable. The continued Experience of the Future (EOTF) build-out in the U.S. will likely prove to be a "key brad differentiator" across the fast food space over the long-term at the expense of a "heavy cost" in the near-term.

Related Link: McDonald's, Restaurant Brands, Chipotle Are Morgan Stanley's Top Restaurant Picks In Challenging Year For Sector

Morgan Stanley: U.S. Not At 'Full Potential

McDonald's U.S. traffic trends were negative in the quarter, which Glass said at first glance is concerning. Specifically, investors aren't seen concrete evidence the EOTF build out is seeing initial signs of success but some patience may be needed. McDonald's similar investments in stores across multiple international markets has seen success once completed while the logic behind improving the overall customer experience and access points is somewhat obvious.

The domestic business is not at "full potential" but 2019 should show acceleration in to-line as remodels and organizational changes "settles in."

Wells Fargo: Sticking To The Strategy

McDonald's rivals are for the most part undertaking an "anything for traffic" strategy, which likely resulted in some market share loss and roughly flat same-store sales growth versus the quick service restaurant sandwich category. Tower said McDonald's is sticking to its multi-year calculated EOTF strategy, which is likely to result in a return to consistent positive traffic growth as soon as this year.

Related Link: 6 Takeaways From Longbow's Conversation With McDonald's Franchisees

Baird: A Look At 2019 Guidance

McDonald's guidance and management's discussion of 2019 implies the potential for EPS growth to come in short of management's prior high-single digit long-term goals, Tarantino said in a research report. Multiple headwinds including lower gains on sales of restaurants, higher D&A expense from remodels, a higher than expected tax rate, and unfavorable foreign exchange conversions suggests EPS could come in short of the current consensus estimate of $8.23.

Raymond James: What The Valuation Says About Expectations

McDonald's stock is trading at a P/E multiple of around 22.6 times and 16.0 times EV/EBITDA -- both of which are near the top end of the stock's three-year historical range, Vaccaro said. This likely suggests the Street is expecting a re-acceleration in U.S. comps in 2019 and can also serve as safe haven for investors in times of economic uncertainty.

Two key readouts casts some doubt on the consensus long thesis: 1) A "more reserved" view of how much the EOTF facelift will boost sales in the U.S. and 2) macro trends in Europe could impact global comps as France, Germany, the U.K. combine for around 25 percent of global EBIT.