RBC Analyst Explains The Reason Behind McDonalds' Upgrade

RBC Capital Markets analyst David Palmer upgraded McDonald's Corporation MCD today to Outperform from Sector Perform.

Palmer was on CNBC Wednesday to explain the reasons behind the upgrade.

Problem That McDonalds Can Solve

"The case with McDonald's, they are in the business of selling chicken sandwiches and hamburgers, things that are selling well elsewhere," Palmer said. "For some reason they are not selling well at McDonald's. Is there something they can do to improve the quality perception? And in doing so start to win or at least not lose share in an industry that's otherwise doing well? That is a one major issue here at McDonald's."

"And the other part is of course the international macro scene and what the company does structurally with its business. Does it keep on owning a lot of restaurants and having a low debt leverage, arguments like that are also going on."

Quality Is The Key

When asked why Wendys is witnessing good growth in its business by principally selling the same food as McDonald's and McDonald's isn't, Palmer replied, "Well Wendys is doing okay. They are doing something like 3 percent same-store sales growth. There are other examples that are doing even better, but the ones that are doing the best are the regional ones. Something about the authenticity of being local is resonating now."

"Plus the ones…that have that high food value scores are resonating the most. We think that McDonalds can win with fun and value and convenience, if they close that quality gap versus their key competitors."