Are Analysts Now Chasing McDonald’s Up Too High?

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McDonald’s Corp. (NYSE: MCD) saw its shares hit a new high on Thursday, as analysts have chased the Golden Arches higher and higher after earnings. More than a dozen price target hikes have been seen in the wake of the McDonald’s quarterly report. This begs two questions: Have analysts become too bullish. And are they getting bullish too late in the cycle?

While McDonald’s had great earnings a week earlier, so far in 2017 the shares are up 18%, which makes them the fourth highest gainer of the 30 Dow Jones Industrial Average stocks. It is important to consider where analysts saw McDonald’s heading at the start of the year and compare that to high how high the stock has risen relative to those expectations.

Note that McDonald’s generated a total return of only 6% in 2016 and closed at an unadjusted $121.72 share price on the last day of the year. Had it not been for a return of 6.3% in the final quarter of the year, its stock would have closed out flat for the year. What stands out now is that the Thomson Reuters consensus analyst price target was just $127.96 at the start of 2017, implying just 5.1% in upside, or an 8.2% gain if you added in the 3.1% dividend yield.

McDonald’s has rallied above that consensus target handily in 2017. 24/7 Wall St. tracked some of the core upgrades and price target hikes that have been seen since the earnings report. Some are mere summaries, but some contain more detail.

Goldman Sachs raised McDonald’s to Buy from Neutral on May 3. The firm’s new price target is $153, compared with a $141.23 prior closing price.

On May 2, McDonald’s saw Citigroup raise its target price to $141 from $130.

Back on April 28, Merrill Lynch reiterated its Buy rating and raised its target price to $165 from $160. The firm sees more aggressive value at the stores, greater product innovation and plans to leverage technology investments.

Argus raised its Hold rating to Buy on April 27. That came with a new price target of $158. The Argus call talked up increased revenue expectations from new promotional offers and revenue drivers from mobile ordering and payments.

On April 26, Stephens maintained an Overweight rating and raised its price target to $155 from $140. The firm sees same-store acceleration as the top surprise, but it also was surprised to see that the mobile ordering and pay testing had reached more than 400 restaurants already.

SunTrust Robinson Humphrey raised its target price to $155 from $139 on April 26 as well. This call noted the momentum in all segments and the turnaround is gaining velocity.

On April 26, BTIG reiterated its Buy rating and raised its price target from $137 to $156. The firm talked up the store modernization program and the expanding digital capabilities as potentially leading to same-store sales growth for multiple years.

Also on April 26, RBC Capital Markets raised its target price to $155 from $145. RBC cited a multifaceted turnaround, and now the firm sees McDonald’s as more attractive than other restaurant peers, with a long-term growth and strong free cash flow story coming into focus.

Barclays reiterated its Overweight rating on April 26 too, but it raised its target to $155 from $139.

Canaccord Genuity maintained its Hold rating, but it raised the price target to $145 from $125 due to higher same-store sales and impressive quarterly results.

Morgan Stanley maintained an Equal Weight rating, but its target of $140 was followed by noting “a Grand Mac of a quarter” and being “that place where comps taste so good.”

McDonald’s shares closed up 0.57 at $143.43 on Thursday, after hitting an all-time high of $143.67. Its market cap is now $117 billion, and the consensus analyst target price from Thomson Reuters is $151.22.