How McDonald's Can Continue To Recapture Market Share

BTIG believes McDonald's Corporation MCD can continue to recapture market share through “menu enhancement, improved restaurant operations and expanded digital capabilities.”

The comments came after McDonald's reported better-than-expected third-quarter results, driven by strong comps and company-owned margins.

The company plans to invest more in “Experience of the Future” initiative over the next three years.

“[W]e believe the investment in the ‘Experience of the Future’ has the potential to drive incremental same-store sales while at the same time elevating the brand in the coming years,” analyst Peter Saleh wrote in a note.

However, Saleh said the company needs to overcome two major hurdles to make Experience of the Future a success. First, the platform should generate incremental sales through the drive-thru, which accounts for roughly 2/3 of sales in the United States.

Related Link: McDonald's Q3 Shows Some Concerning Trends

“We believe the return hurdle would be too high if McDonald’s can’t leverage the platform to drive-thru for this investment,” Saleh highlighted.

Second, the analyst said McDonald’s would need to remodel most, though likely not all, of the remaining about 7,000 domestic units either simultaneously or ahead of the Experience of the Future deployment. If 85 percent of units set to be remodeled, the company should spend $1.2 billion–$1.4 billion.

However, Saleh maintains his Buy rating and $137 price target saying that All Day Breakfast enhancements and improved value offerings should offset difficult sales comparisons in the next two quarters.

At the time of writing, shares of McDonald's were down 0.85 percent to $112.96.

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