Argus Upgrades McDonald's To Buy, Sees It Outperforming Peers As Turnaround Continues

• McDonald's Corporation MCD shares have gained 7 percent since October 27.
• Argus’ John Staszak upgraded the rating for the company from Hold to Buy, with a price target of $140.
• The company is poised to perform better than peers, given good progress in its turnaround plan and benefits of lower food costs, Staszak stated.

Analyst John Staszak mentioned that McDonald’s is currently implementing a turnaround plan, besides increasing the number of company-owned restaurants that it plans to sell to franchisees. Lower food costs are also having a positive impact on the company’s performance.

McDonald’s raised the amount of cash it plans to return to shareholders in 2014-2016 from $18-$20 billion to $30 billion. This will be done via dividends and share buybacks, Staszak stated.

McDonald’s posted robust growth in comp-store sales, operating margins and EPS in 4Q15. The company reported 4Q15 operating earnings of $1.31 per share, up from the year ago level of $1.13. The increased earnings resulted from higher comps, improvement in the US and the impact of share buybacks, Staszak wrote.

The company’s full year revenues declined 7 percent to $25.4 billion, but comp sales were up 1.5 percent and EPS was $4.98, versus $4.82 recorded in 2014.

Staszak expects the company to perform well and post above-peer-average earnings growth going ahead, which should allow “MCD shares to outperform those of other restaurants.” “We think that prospects for continued improvement in comps and increased share buybacks, along with the 3.0% dividend yield, will attract investors,” the Argus report added.