Baird Upgrades McDonald's, Says U.S. Slowdown And Comps Are Near-Term Risk
Following the year-to-date underperformance, Baird’s David E. Tarantino believes McDonald's Corporation (NYSE: MCD) now offer a more favorable risk/reward for investors “with a 6-12+ month horizon.”
Tarantino upgraded the rating on the company to Outperform, while raising the price target from $126 to $128.
“While we acknowledge that slower U.S. industry demand trends and challenging upcoming comparisons pose a short-term headwind, we believe the company’s attractive dividend yield can help to limit further downside risk in the shares,” the analyst mentioned.
Tarantino believes there is opportunity for investor sentiment on the stock to improve, once McDonald’s gets passed the tough compares and demonstrates further progress on improving its business model.
“In our opinion, concerns about recent industry demand trends and challenging upcoming comparisons for MCD have created a more compelling entry point on MCD for investors who are willing to look past these short-term headwinds,” the analyst stated.
Given that shares have declined 2 percent year-to-date, as compared to the 7 percent rise in the S&P 500, Tarantino believes the stage is now set for McDonald’s to outperform, once investors begin to focus on the fundamental positives.
For the U.S. business, the analyst expects the company to be able to achieve the comps estimates for Q3, Q4 and Q1 2017.
More importantly, Tarantino believes “management’s ongoing efforts to drive stronger execution of the brand’s core attributes (quality, value, convenience) can lead to positive top-line momentum on a more sustained basis once comparisons normalize.”
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