Credit Suisse More Positive on McDonald's

After McDonald’s Corp. (NYSE: MCD) held its investor day, there has been some positive carry here. The fast-food giant increased its dividend and capital return program, increased its franchise goals, and sees more cost cutting.

It turns out that Credit Suisse took note. McDonald’s was reiterated as Outperform in the firm’s call on Wednesday, and it raised its price target to $128 from $118. All these forecasts are all ahead of the current model. As expected, McDonald’s did not guide on current quarter same-store sales. Credit Suisse maintains that the company’s tone was clearly positive.

McDonald’s decided not to pursue a real estate investment trust (REIT) structure. Credit Suisse actually agrees with the company’s assessment and now thinks that decision was generally in line with market expectations.

Jason West, Credit Suisse’s analyst making his assessment, said:

While McDonald’s shares were relatively flat post the investor day on Tuesday, we came away still positive on the near-term and long-term outlook and note that expectations were high going into the meeting.

McDonald’s delivered about $10 billion in upside on 2016 buybacks (roughly 10% of its market cap), increased its SG&A targets by about 67% ($500 million versus $300 million) and raised the refranchising target to 4,000 units from 3,500.

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McDonald’s noted that domestic same-store sales in October so far have outpaced the industry. West feels that this implies that domestic same-store sales are likely at least about 4% in the month or a tad higher. West is only modeling fourth-quarter domestic same-store sales.

The firm’s new $128 price target is based on 24 times the firm’s new 2016 earnings per share estimate of $5.34 — up from $5.19 per share. Credit Suisse’s earnings multiple base was also raised to 24 from 23 based on improved visibility on forward earnings and an expected acceleration in growth in 2017. It was based also on a higher-than-expected franchise mix that will drive a higher return on invested capital.

McDonald’s shares were trading up 0.6% at $113.96 late Wednesday morning. The consensus analyst price target from Thomson Reuters is $115.05, and the 52-week trading range is $87.50 to $114.99.