McDonald's Corp (NYSE:MCD) reported first-quarter results, which came in better than expected but management's commentary of higher expenses has the Street debating the company's upside potential.
The Analysts
Stephens' Will Slabaugh maintains an Overweight rating on McDonald's with a price target lifted from $210 to $220.
Bank of America's Gregory Francfort maintains at Buy, price target lifted from $200 to $215.
BMO Capital Markets' Andrew Strelzik maintains at Outperform, price target lifted from $195 to $210.
Morgan Stanley's John Glass maintains at Overweight, unchanged $210 price target.
Mizuho Securities' Jeremy Scott maintains at Buy, price target lifted from $204 to $215.
The stock traded around $194.55 per share at time of publication.
Stephens: Main Takeaways
McDonald's earnings report includes three key takeaways, Slabaugh said in a research report:
- Acceleration in the U.S. business has been confirmed and customers are more likely to spend more for the right promotion;
- The international business is performing at its best since the recession; and
- Earnings estimates for fiscal 2019 could "come in a little light" amid higher costs and a modest store-level margin pressure.
BofA: Catch-Up Mode Will Pay Dividends
McDonald's could be guilty in being slow to build out digital capabilities, but the analyst said recent strategic moves should be viewed "positively."
BMO: Cost Becoming A Frustration
McDonald's outlook remains encouraging as the restaurant chain should see higher than expected U.S. same-store sales growth for 2019. Strelzik said the international business also performed well as it showed "broad-based strength" in the first quarter.
McDonald's "cost creep" is becoming a source of frustration as it can limit upside to earnings, according to Strelzik. For example, flow through from stronger comps in the first quarter was "disappointingly light" and resulted in a miss on the operating profit line.
Morgan Stanley: Earlier Than Expected Benefits
McDonald's ongoing investments in its Experience of the Future (EOTF) remodels continued positively to first-quarter comps although at an unquantified rate, Glass said. Encouragingly, positive results from EOTF investments are happening earlier than expected and momentum could carry over throughout the rest of the year.
Traffic in U.S. stores likely fell in the first quarter but management has drivers available to help lift traffic moving forward. The international business was "surprisingly robust" and creates the potential for global comps to come in above 5 percent in 2019.
Mizuho: Delivery Part Of Growth Plan
McDonald's highlighted delivery represented a $3 billion business across the world and may have contributed one percentage points (accounting for overlap) to global comps, Scott said. The company also noted delivery is a key component of its growth outlook and management will continue driving awareness with partners.
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