Market Overview

Morgan Stanley: The Street Underestimates McDonald's Store Remodel Story

Share:
Morgan Stanley: The Street Underestimates McDonald's Store Remodel Story

Mcdonald's Corp (NYSE: MCD) continues to invest in its business through store remodels and its "Experience of the Future" and the potential positive impact is underappreciated by the Street, according to Morgan Stanley.

The Analyst

Morgan Stanley's John Glass upgraded McDonald's from Equal-Weight to Overweight with a price target lifted from $173 to $210.

The Thesis

McDonald's ongoing investments in store remodels is likely impacting U.S. same-store sales by more than the 50 basis points year-to-date management guided to, Glass said in a note. However, the "tipping point" where benefits from early remodels outweigh any near-term negative impact from closure times and sales recovery.

By the end of 2018, Glass said the company will likely complete 14,000 U.S. store remodels and the "point of maximum pressure" on comps will occur within the next two quarters and sales will likely sequentially improve after. Over the coming three years, McDonald's free cash flow growth is likely to accelerate from 2 percent in the past three years to a 13 percent compounded annual growth rate.

McDonald's is considered the sole "defensive restaurant stock" under Morgan Stanley's coverage given its history of outperforming the market during economic slowdowns, the analyst said. McDonald's also offers investors a "stabilizing, defensive counterbalance" in today's volatile market as the stock outperformed the market on average by 70 basis points when the S&P 1500 index was down for the week and the Volatility Index was higher.

Price Action

Shares of McDonald's were trading higher by 1.4 percent to $190.50 early Thursday morning.

Related Links:

Early Reactions To McDonald's Q3 Earnings Beat

'Positive Implications': Why McDonald's Canada's Performance Is Important For The US Business

Latest Ratings for MCD

DateFirmActionFromTo
Sep 2019MaintainsBuy
Aug 2019Initiates Coverage OnBuy
Jul 2019DowngradesBuyHold

View More Analyst Ratings for MCD
View the Latest Analyst Ratings

Posted-In: Experience Of The FutureAnalyst Color Upgrades Price Target Restaurants Top Stories Analyst Ratings General Best of Benzinga

 

Related Articles (MCD)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
NVSTJP MorganInitiates Coverage On32.0
DDOGGoldman SachsInitiates Coverage On33.0
NVSTGoldman SachsInitiates Coverage On33.0
PINGGoldman SachsInitiates Coverage On24.0
IGMSStifel NicolausInitiates Coverage On32.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Powell Pushes Gold ETFs Higher... Sort Of

Eurozone Inflation Preview: With Oil Down 30% And Inflation Decelerating, ECB Rate Hike Chances Fall