'Positive Implications': Why McDonald's Canada's Performance Is Important For The US Business

McDonald's Corp MCD hosted several Street analysts in Toronto to showcase the performance of the Canadian unit and its potential impacts on the U.S. business.

The Analysts

BMO Capital Markets' Andrew Strelzik maintains an Outperform rating on McDonald's with an unchanged $195 price target.

Barclays' Jeffrey Bernstein maintains at Overweight, unchanged $190 price target.

Wells Fargo's Jon Tower maintains at Outperform, unchanged $202 price target.

BMO: Similar Markets

McDonald's Canadian business has been performing particularly well over the past five to six years judging by multiple key metrics, BMO's Strelzik said in a note.

They include:

Annual comp growth of 4.8 percent.
A 65-percent increase in franchisee per store cash flow to $500,000.
Success in delivery, with some units delivering 100 orders per day — of which 70 to 80 percent are incremental transactions.
Kiosks account for 46 percent of transactions and come with a 20-percent larger average check size.
Sustainable sales growth after the completion of store modernizations.

The Canadian market is no different from the American market, and McDonald's American management team is introducing initiative similar to those undertaken in Canada, the analyst said.

As such, McDonald's Canada's success over the past few years has "positive implications" for the U.S. outlook, Strelzik said.

Barclays: Expect Years Of Outsized Growth In The US

McDonald's Canada is included in the company's international lead market segment, so any Canada-specific financial and performance metrics are hard to find, Barclays' Bernstein said in a note. The restaurant chain's management team made it clear a brand transformation is succeeding, as shown by 12 years of comp growth and a peak quick service restaurant market share of more than 17 percent, he said.

Canada is at the "forefront of the McDonald's system," and the company's encouraging comments suggest a similar impact is possible in the U.S. market, the analyst said.

The U.S. business could see years of outsized comp growth if Canada's performance over the past decade is any indication of future domestic results, according to Barclays.

Wells Fargo: US News Stole The Spotlight

In conjunction with the investor meeting in Toronto, news from the U.S. business took the spotlight, Wells Fargo's Tower said in a note.

They are:

McDonald's is expanding a deadline for franchisees to include its "Experience of the Future" remodel through 2022 versus 2020.
Capex and same-store sales headwinds in 2019 will likely be lower than previously expected, as management is taking a "more level-loaded remodel schedule."
McDonald's will be working with its franchisees to better address local versus national value advertising.