Credit Suisse Is 'Lovin' It' At McDonald's

• Shares of McDonald's Corporation MCD have risen 1.81 percent year-to-date, reaching a high of $101.10 on August 19.
• Credit Suisse’s Jason West has upgraded the company from Neutral to Outperform, while raising the price target from $100 to $112.
• West expects investor sentiment on the stock to reverse when the company’s same-store sales turn positive in 3Q15, following several years of weak same-store sales.

According to the Credit Suisse report, “While MCD's new CEO has already announced several positive operational and financial steps, more improvements are likely forthcoming.”

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Analyst Jason West explained that checks have indicated McDonald’s same-store sales trends in the United States have already begun to turn positive, which is not yet reflected in the consensus forecasts. The checks also indicate that this recovery is being driven by menu and operational changes, as well as a few new product wins.

In fact, West reported that the company has already indicated that its global same-store sales are expected to turn positive in 3Q15, driven by strength in its key international markets and the resolution of supplier issues in Asia.

The same-store sales momentum in the US is expected to “build into 4Q with the launch of all-day breakfast,” and West believes that there could be 5-6 percent upside to the current 2016 estimates due to higher same-store sales, SG&A reduction and leverage.

West also believes that the McDonald’s stock offers a favorable risk/reward profile, with limited downside and 20 percent upside potential, driven by a rising franchise mix.