McDonald's Refranchising, Expense Reduction Efforts Will Continue To Create Value For Investors

BTIG’s Peter Saleh remains positive on McDonald's Corporation MCD, given the expectations of sales improvement and potential for favorable risk/reward.

Saleh maintains a Buy rating on the company, with a price target of $137.

Creating Value

The analyst believes McDonald’s “refranchising and expense reduction efforts will continue to create value for shareholders.”

Although the comp outlook for the company continues to be challenging in the U.S. in the near term, especially during Q1 2017, Saleh believes the decline in relative sales performance could be slowed through the upcoming sales and menu initiatives.

“We expect a more significant investment in technology and restaurant upgrades will be the focus in the U.S. over the next several years, replicating the strategy used in Canada and Australia, in an effort to improve guest count trends,” the analyst mentioned.

Q4 Results

McDonald’s reported Q4 2016 results, with EPS of $1.44, marginally below the estimate, driven by a decline in other operating and non-operating incoming partly mitigated by lower interest expense and stronger sales.

Global same-store sales rose 2.7 percent, beating the estimate and the consensus, driven by the company outperforming in the High Growth and Foundational markets, although the U.S. was slight weaker than expected.

“We are modestly reducing our 2017 EPS estimate to $6.23 from $6.27 given the comp outlook and introducing our 2018 estimate of $6.62,” Saleh added.