Don't Give Up On McDonald's: Here's Evidence It Might Be Turning Around

• McDonald's Corporation MCD shares have been volatile in 2015, and have gained 11 percent year-to-date.
• RBC Capital Markets’ David Palmer maintained an Outperform rating on the company, with a price target of $119.
• McDonald’s is expected to witness a turnaround in its US operations from 3Q onwards, Palmer noted.

Analyst David Palmer believes that McDonald’s is poised for a turnaround in the US. The domestic recovery is likely to be jump-started by an above-plan all-day breakfast launch, which is expected to fuel higher-than-expected SSS in 4Q. The trend is likely to be sustained by a return to value offerings in 2016, Palmer added.

“In our view, McDonald's has done best when it listens to the consumer and finds ways to reinforce its brand positives (e.g., value, convenience, consistency, and fun) and diminish its negative brand associations (e.g., low-quality food),” the RBC Capital Markets report noted.

The re-adoption of a consumer-centric approach is expected to allow improve McDonald’s quality perception and prove positive for brand enforcement in 2016, the RBC Capital Markets report added.

Palmer believes that 3Q will represent the beginning of the US turnaround and will be complemented by stable to improving results in the international markets. McDonald’s is expected to report 3Q EPS of $1.26, up 17 percent y/y on global SSS growth of 1.8 percent.

The EPS estimates for 2015and 2016 have been reduced from $4.78 to $4.72 and from $5.43 to $5.35, respectively, to reflect currency impact.