Market Overview

6 Takeaways From Longbow's Conversation With McDonald's Franchisees

6 Takeaways From Longbow's Conversation With McDonald's Franchisees

Current consensus estimates calls for McDonald's Corp (NYSE: MCD) to report a 2.3-percent domestic same-stores sales growth in the fourth quarter, but Longbow's first-hand checks with franchisees suggests the potential for outperformance.

The Analyst

Longbow Research's Alton Stump maintains a Buy rating on McDonald with a $194 price target.

The Thesis

Stump's surveys and conversation with McDonald's U.S. franchisees suggests the chain could show a same-store sales growth of 2.5 percent to 3 percent in the fourth quarter, the analyst said in a note. Outperformance in the quarter is likely to be result in multiple expansion in McDonald's stock and be viewed "positively by most investors."

Here are the six takeaways from the conversations:

  1. On a two-year stack, same-store growth in the fourth quarter accelerated from 6.5 percent in the prior quarter to 7-7.5 percent.
  2. Comps improved to the 3-3.5 percent range in the bottom half of the fourth quarter thanks to an easier year-over-year comparison.
  3. The Triple Stack breakfast launch contributed an estimated 50- to 100-basis point boost to same-stores ales over the last seven or eight weeks in the fourth quarter.
  4. The two-item mix and match for $5 deal again includes Quarter Pounder burgers and saw an impressive start.
  5. A signature international burger of the month launch in early 2019 is likely to replace current existing Signature items.
  6. The any size coffee for $1 promotion resulted in stable year-over-year breakfast sales in the fourth quarter versus a 100- to 200-basis point decline in breakfast revenue in the first three quarters of 2018.

Price Action

Shares of McDonald's were trading higher by 1.5 percent at $180.96 Monday afternoon.

Related Links:

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

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

Latest Ratings for MCD

Oct 2019MaintainsNeutral
Oct 2019MaintainsOutperform
Oct 2019MaintainsOutperform

View More Analyst Ratings for MCD
View the Latest Analyst Ratings

Posted-In: Alton Stump breakfast Longbow ResearchAnalyst Color Restaurants Analyst Ratings General Best of Benzinga


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