3 Reasons Why McDonald's Will Move Higher
McDonald's is on the receiving end of an analyst upgrade Tuesday. Credit Suisse is boosting its rating on the stock -- from Neutral to Outperform -- as it bumps its price target from $100 to $112.
Analyst Jason West is encouraged by recent trends, but it's not as if the stock itself has been as out-of-favor as the concept. McDonald's may be coming off of a rough stretch where it's been posting negative stateside comps through most of the past two years, but investors have generally been pretty forgiving. The stock was trading just 7.5% off of its all-time high as of Monday's close, and if you factor in all of the quarterly dividends that the leading burger chain has paid out it's actually closer to 3% of its all-time peak.
Wall Street may not be crazy about McDonald's, but it's not as if it was actually hating it during the chain's darkest hour. Let's look at some of the reasons why investors may want to follow West's lead and jump back into the Golden Arches.
1. Comps are finally bouncing backThings just haven't been the same at McDonald's since late 2013, and things didn't get any better during its most recent quarter with comps at domestic restaurants slipping 2% since the prior year.
The silver lining behind back-to-back years of negative comps is that it makes it that much easier to bounce back off of depressed levels. West sees that happening right now. His checks indicate that same-restaurant sales have finally turned positive. With a recovery already in the works in Europe where comps were positive in its latest quarter and the company seemingly over Asia's supplier issues, a global bounce in comps is more than likely for the third quarter that's about to come to a close. By the time it becomes official -- McDonald's reports financial results on Oct. 22 -- the rest of the analyst community should update its outlook.
2. All-day breakfast is a game changerMcDonald's is starting to serve key breakfast items all day in select markets, going nationwide with the menu move next week. Shifting to offering all-day breakfast has been the butt of late night show fodder, but it's also a bigger move than you think.
It will be incremental, enhancing the lunch and dinner traffic that hasn't been as strong as breakfast mornings at Mickey D's. It should also help increase guest spending as McCafe beverages get attached to more meals.
Franchisees that have often butted heads with McDonald's are on board with this move. It doesn't introduce new ingredients to the prep tables or items for the menu board. It should be a smooth transition, and no one's going to judge you if you order a hashbrown instead of fries and wedge it into a Quarter Pounder to make the breakfast burger offered at some gourmet burger joints.
3. Steve Easterbrook is getting it doneHe's only been on the job a few months, but CEO SteveEasterbrook seems to be the right person to turn things around. He had turned things around for McDonald's in Europe and was breathing new life into its marketing strategy just before taking the reins.
With operational changes to improve efficiency and the customer experience it's a great time to be McDonald's. Gas is cheap, so snaking through the drive-thru isn't as painful as it used to be. The economy's improving, placing more commuters on the road to drive past a McDonald's.
Between menu tweaks, enhanced operations, and a stronger macro environment the chain seems to be finally heading in the right direction.
The article 3 Reasons Why McDonald's Will Move Higher originally appeared on Fool.com.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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