Analysts More Bullish On McDonald's After 'Thesis-Affirming Quarter'

McDonald's Corp MCD reported Friday yet another "thesis-affirming quarter" in which the fast-food giant showed both tangible and accelerating metrics in its second-quarter results.

The Analysts

Wells Fargo's Jon Tower maintains an Outperform rating on McDonald's with a price target lifted from $235 to $237.

Stephens' Will Slabaugh maintains at Overweight, price target lifted from $220 to $230.

Shares of McDonald's traded around $216.93 Monday morning.

Wells Fargo: 'Bearish Knock' Quarter

McDonald's earnings represents another "bearish knock" on the stock in which short investors argued the restaurant's dependence on same-store sales to drive system-wide sales growth is a concern, Tower wrote in a note. Exiting the print, it's evident the company will end 2019 with around 2% unit growth which is the highest seen in five years. The momentum in store growth remains an underappreciated part of the stock's narrative in contributing to EBITDA and cash flow generation.

Meanwhile, Tower said McDonald's looks to be on track to return $25 billion to shareholders and management is likely to present a new multi-year cash return guidance in the coming months.

The ongoing rapid expansion of technology acquired from Dynamic Yield will be included at 8,000 U.S. stores in the coming months. Tower said this should add comfort to the company's ability to continue driving same-store sales growth ahead of introducing the acquired technology to international stores next year.

Related Link: The Street Remains Bullish On McDonald's

Stephens: Q3 Could Be Even Better

McDonald's report was highlighted by a 5.7% same-store sales growth in the U.S. and 6.5% global growth, Slabaugh wrote in a note. Both numbers easily beat expectations and showed signs of acceleration. Specifically, same-store sales growth on a two-year basis sped up by 90 basis points and represented the best performance since the end of 2018 when the launch of all-day breakfast items was implemented.

If McDonald's shows a deceleration of same-store sales by 200 basis points, Slabaugh said the company will still be able to match current full-year consensus estimates of 4.4%. Given the current momentum there is sufficient reason to believe this won't happen and the third quarter could come in even better for four reasons: continued shift from fresh beef, the return of the two menu items for $5 option, ongoing experience of the future (EOTF) deployments and an overall core menu strength.

McDonald's faces "blue skies" for at least the rest of 2019 and there is no reason for investors to be looking at cashing in on some profits as the company's "global engine seems to be hitting on virtually all cylinders."