Bank Of America Likes McDonald's Stock A Little More

McDonald's Corp MCD deserves a higher "McMultiple" given expectations for strong top-line trends, according to Bank of America.

The Analyst

Bank of America's Gregory Francfort maintains a Buy rating on McDonald's with a price target lifted from $215 to $220.

The Thesis

Street estimates call for McDonald's to show a 3.9-4.2 percent U.S. comp growth through the fourth quarter and these figures look conservative, Francfort said in a note. The company reported 4.5-percent comp growth in the first quarter and easier comparisons ahead to support estimates of 4.75-5 percent through the end of the year.

Over the medium- to longer-term, Francfort said McDonald's should show an acceleration in new store openings as its favorable store level profitability will become more attractive amid declining industry store-level margins. Estimates call for 2-percent global unit growth, but the research firm is modeling 2.5-3 percent through 2021.

Meanwhile, McDonald's investments in technology show management is serious about playing "catch-up," the analyst wrote in the note. For example, the $300-million acquisition of Israel-based Dynamic Yield will offer consumers personalized options on ordering screens. A focus on expanding the relationship with customers should result in a stronger brand and consumer satisfaction.

Price Action

Shares of McDonald's traded higher by 1.1 percent at $205.46 Friday afternoon.

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