The Street Debates McDonald's Comeback

McDonald's Corp MCD announced Tuesday a business update consisting of its same-store sales performance in April and May and COVID-19-related commentary.

Here is a summary of how some of the Street's top analysts reacted to the report.

The Analysts

BTIG analyst Peter Saleh maintains a Buy rating on McDonald's stock with a $220 price target.

MKM Partners analyst Brett Levy maintains a Buy rating on McDonald's with a $210 price target.

Morgan Stanley analyst John Glass maintains at Overweight, price target lifted from $189 to $200.

BofA Securities Gregory Francfort maintains at Buy, price target lifted from $205 to $210.

Wells Fargo analyst Jon Tower maintains at Overweight, price target lifted from $209 to $220. 

Related Link: McDonald's Serves Up April, May Metrics, COVID-19 Update

4 Key Takeaways

Saleh said McDonald's latest update consists of four key takeaways:

• U.S. comps showed a "steep" recovery in part due to drive-thru orders. While customer traffic is still negative, the average check size was higher.
• International same-store sales remain "depressed" although 75% of restaurants were open in May (45% in April) versus 90% now.
• Developmental Licensed Markets also remain depressed but sales should recover as a similar 90% of restaurants are now open versus 80% in April and 85% in May.
• Management's top priorities moving forward include investing in the business, maintaining the dividend policy, and debt repayment.

3 Key 'Call Outs'

McDonald's senior management shared some additional color on three key themes for investors, Levy wrote in a note. These include:

• Overall sales: Dine-in represents an incremental "bump" to total sales among stores that reopened; breakfast represented around 50% of the domestic comp shortfall; and management expects a staged pace in Europe.
• Menu and marketing: Management will refocus efforts on breakfast; menu options should expand but are unlikely to return to a full offering; baked goods and chicken plans are on hold; marketing spending and direction remain in the planning phase.
• Capital and spending: Dividend remains an important priority; debt paydown has precedent over buybacks; a prior $1 billion in CAPEX savings is unlikely to play out as expected; 2021 unit growth could return to a "normalized" level; mobile and loyalty programs remain under discussion.

'Not Yet Bright'

McDonald's performance came in better than expected although it's "not yet bright," Glass wrote in a note. Specifically, the U.S. market remained negative at the end of May while the international business remains impacted by limited consumer mobility, fewer hours and dining room capacity.

Nevertheless, the company signaled "better visibility" on an eventual sales recovery.

Related Link: 'Breakfast Is Back': 3 Key Trends During The Most Important Meal Of The Day

Better Positioned Versus Rivals

McDonald's is better positioned versus its peers given the strength of its franchisees, a strong balance sheet and the chain's ability to thrive in a recessionary environment, Francfort wrote in a note. Granted, the pace of recovery in the near-term will likely be slower but the research firm is mostly looking to 2021 and beyond.

Winning Market Share

McDonald's update makes the case that the fast-food chain is gaining global market share given its compelling value, a safe customer experience (mobile order and pay), and flexing its marketing strength across major markets, Tower said.

The path moving forward for McDonald's won't be linear, but management can count on its competitive advantage.

"We view MCD as having one of the most favorable risk-rewards within the large cap restaurant space," the analyst wrote.