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McDonald’s turnaround on track; stock hits new peak after upgrade

After making a dismal start to the year, often underperforming the market, McDonald’s (MCD) has made a noticeable recovery in the second half. While food safety scandals added to the negative sentiment in the early months, fans of the fast-food giant pinned hope on the turnaround strategy rolled out by CEO Steve Easterbrook.

Now that things have changed for the better, as evidenced by the third-quarter results, the California-based company is receiving positive reviews from analysts. Boosting the investors’ morale, Morgan Stanley Thursday raised its rating on McDonald’s to overweight from equal-weight, encouraged by the prospects of the company’s extensive store modernization initiative.

The continuing slump in sales at company-owned outlets has prompted the management to extend the modernization program – which was initially launched overseas – to the local market. The effort is expected to start yielding the desired results by next year. Considering the scale of the revamp, store footfall is likely to grow sharply in the coming years. As per the latest estimate, the heavy investment in infrastructure will result in same store sales growing at a faster pace than initially thought.

Morgan Stanley raised its rating to overweight from equal-weight, encouraged by the prospects of McDonald’s store modernization initiative

Setting the target at $210, sharply higher than the current price of around $190, the analyst observed that the market “underappreciated” McDonald’s growth strategy, and expressed hope the company would soon come up with a “structurally improved” business model. The bullish view suggests that long-term investors should grab this opportunity.

Continuing the recovery that started last month, the stock rose to a record high Thursday but pared some of the gains as trading progressed. Considering its tendency to outperform the market during slowdown, the current position of the stock assures long-term stability.

McDonald’s stock jumps as Q3 comps gain on favorable pricing

The renovation program is crucial for the company when it comes to conducting operations in a sustainable manner. There has been a decline in footfall at the McDonald’s restaurants in the recent quarters, though earnings came in above estimates helped by stable comparable store sales.  Making matters worse, the burger giant recently got embroiled in a series of scandals related to food-safety and was forced to recall certain items from its outlets.

 

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