McDonald's Is In A 'Sweet Spot' To Hit 2019 Targets; BMO Initiates At Outperform

Andrew StrelzikMcDonald's CorporationMCD

1. Early Stages Of A Turnaround

Strelzik expects McDonald's to achieve its 2019 objectives, as the company is still in the early stages of benefiting from multiple initiatives, including: a) new menu items, b) a corresponding large-scale marketing project to promote the new items and c) a stronger brand image which will support demand. Outside of new menu initiatives, McDonald's is poised to return a "material amount" of cash to shareholders as it plans on buying back shares worth up to 15 percent of its market cap.

2. The 'Sweet Spot'

3. McDonald's Can Beat Its Targets

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Strelzik argued that McDonald's is currently sitting in a "sweet spot" to take advantage of an improving restaurant environment that will emerge in the bottom half of the year.

In fact, the analyst's model doesn't even factor in any industry-wide improvements, which could add even further upside to the stock.

Finally, the analyst even suggested that there is a possibility for McDonald's to even exceed its targets, given: a) favorable food costs, b) improved G&A expenses and c) greater capex efficiency and a flexible approach to balance sheet leverage.

Bottom line, McDonald's stock is trading at around 14–14.5x forward-12-months EV/EBITDA, which happens to be the lowest valuation among highly franchised restaurants and this is not justified as the company is a "premium brand."