McDonald's Is A Sell-Side Favorite Among Large-Cap Restaurants

“Given our belief that both investor sentiment and conviction remain low, we believe it is prudent to highlight McDonald's Corporation (NYSE: MCD) as having what we view as the most attractive setup for a large cap restaurant,” Stephens’ Will Slabaugh said in a note.

The analyst maintains an Overweight rating on the company, while raising the price target from $135 to $140.

Robust Fundamentals

Slabaugh expects McDonald’s global fundamentals to remain robust and ahead of expectations with minimal EPS risk, as the company shifts to a 95 percent franchised model.

The analyst believes that “there is a fairly clear path to an accelerating U.S. comp,” while there is significant room to the stock valuation to improve.

Same-Store Sales

McDonald’s Q4 global same-store sales growth of 2.7 percent was the strongest reported by the company since 2011.

“With approx. 66 percent of consolidated revenues coming from the three int'l. segments, we believe the recent acceleration of global comps is a reminder of the broader strength and opportunity of the brand,” Slabaugh stated.

The analyst pointed out that despite the intense investor focus on the company’s U.S. comp of -1.3 percent, McDonald’s had been able to effectively control its store-level and corporate cost structure to meet EPS expectations.

“Net, we view MCD as being in the early stages of a multi-year turnaround that should lead to consistent global SSS and EPS growth.” Slaubaugh added.