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BMO keeps McDonald's stock at Outperform, highlights comp recovery potential

EditorAhmed Abdulazez Abdulkadir
Published 31/10/2024, 02:34 am
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On Wednesday, BMO Capital Markets maintained its Outperform rating on McDonald's Corporation (NYSE:MCD) and increased its price target to $335 from the previous $315. This adjustment follows the company's third-quarter earnings report, which revealed earnings per share (EPS) of $3.23, surpassing the consensus estimate by $0.02.

The better-than-expected earnings were attributed to favorable selling, general and administrative expenses (SG&A), and other income which helped mitigate weaker comparable store sales (comps) and margin effects from value promotions.

McDonald's reported that U.S. comparable store sales had shown acceleration into the mid-single digits quarter-to-date before a food safety incident occurred. Despite this setback, the company has expressed optimism that the outbreak has been contained and that the most challenging period has passed. BMO's analysts have made minimal changes to their estimates, taking a conservative stance on the speed of recovery in comparable store sales.

The decision to raise the price target reflects a more confident view on the stock's valuation potential. BMO believes that there is now an opportunity to capitalize more aggressively on the recent decline in McDonald's share price. The firm's updated stance suggests that they see further upside for the stock, despite the conservative estimate adjustments.

McDonald's recent performance and BMO's subsequent price target increase come amidst a backdrop of the company navigating through a food safety concern. The confidence expressed by both McDonald's and BMO Capital Markets indicates a belief in the company's resilience and potential for growth, as the worst of the food safety issue is considered to be over. The new price target of $335 signifies BMO's optimism in the stock's future performance.

In other recent news, McDonald's Corporation has experienced significant developments. The fast-food giant reported a larger-than-expected 1.5% drop in global sales for the third quarter, the largest decrease in four years. Despite this, McDonald's surpassed profit expectations with earnings of $3.23 per share on an adjusted basis, slightly higher than the $3.20 forecasted by analysts. The company also faced an E. coli outbreak linked to its Quarter Pounder burgers, temporarily halting sales of the product in several U.S. locations.

In terms of analyst ratings, Deutsche Bank (ETR:DBKGn) maintained its Buy rating for McDonald's, while Goldman Sachs (NYSE:GS) and BTIG kept a Neutral stance. Truist Securities adjusted its price target for McDonald's shares to $342 from $350, maintaining a Buy rating. These recent developments highlight a mixed performance with same-store sales falling short of expectations, earnings per share exceeding them, and strategic plans for future growth.

McDonald's is preparing to introduce a comprehensive value platform in the first quarter of 2025, aiming to address the current soft consumer demand. The company's strategies also include new product innovations like the Chicken Big Mac and Snack Wraps expected to be introduced in 2025. Despite facing near-term challenges, analysts express confidence in McDonald's recovery and anticipate a swift rebound.

InvestingPro Insights

McDonald's Corporation's (NYSE:MCD) recent performance and BMO Capital Markets' optimistic outlook are further supported by data from InvestingPro. The company's market capitalization stands at a robust $211.62 billion, underscoring its position as a major player in the fast-food industry.

InvestingPro Tips highlight McDonald's strong dividend history, having raised its dividend for 49 consecutive years. This consistent dividend growth, coupled with a current dividend yield of 2.4%, may appeal to income-focused investors. The company's financial health is further evidenced by its profitability over the last twelve months and analysts' predictions of continued profitability this year.

McDonald's revenue for the last twelve months as of Q2 2024 was $25.76 billion, with a revenue growth of 6.46% over the same period. This growth, along with a strong gross profit margin of 56.97%, aligns with BMO's positive outlook on the company's performance.

It's worth noting that McDonald's is trading at a P/E ratio of 26.06, which InvestingPro Tips indicate is high relative to its near-term earnings growth. This valuation metric could be an important consideration for investors evaluating the stock's current price in relation to BMO's new target of $335.

For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on McDonald's, providing a deeper insight into the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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