Positive Trends Continue For McDonald's; Time To Buy The Stock?

Analysts at Longbow Research turned bullish on McDonald's Corporation MCD after conducting first-hand checks and having conversations with franchisees. The firm's Alton Stump upgraded McDonald's stock rating from Neutral to Buy with a $183 price target.

After talking with franchisees, it is likely that McDonald's third-quarter comps will show a 4.0–4.5-percent gain, Stump commented in his upgrade note (see his track record here). This would mark an improvement from the 3.5-percent growth the analyst previously modeled and the consensus estimate of 3.4-percent growth. Perhaps more importantly, McDonald's growth rate in the third quarter implies a 5.3–5.8-percent growth rate on a two-year stacked basis.

McDonald's business was boosted by the launch of a beverage value promotion which may have driven an estimated 150 to 200 basis point sales lift, the analyst continued. The launch of new Signature Crafted sandwiches also accounted for a 150-basis-point year-over-year ticket lift in the third quarter, which marks an acceleration from a 100-basis-point lift in the second quarter. Also, the ongoing roll out of delivery may have driven an incremental 50-basis-point comp lift in the third quarter.

Beyond the third quarter, the analyst's checks and conversations reaffirmed the strength of the restaurant chain's turnaround story not only in the U.S. but internationally.

"Our expectations for MCD to report better than expected U.S. same-store sales growth in 3Q17 should drive both earnings and multiple upside," the analyst concluded. "Furthermore, the company has a couple of key initiatives that could drive further comp upside in coming quarters."

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