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Why Did Jefferies Upgrade McDonald’s?

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Why Did Jefferies Upgrade McDonald’s? PART 1 OF 2

Why Did Jefferies Upgrade McDonald’s?

Upgradation

On December 5, 2017, Jefferies upgraded McDonald’s (MCD) to “buy” from “hold.” It also raised McDonald’s 12-month target price from $150 to $200.

Jefferies expects digital advancements, restaurant remodeling to the EOTF (Experience of the Future), menu innovations, and delivery service expansion to drive McDonald’s SSSG (same-store sales growth). It expects refranchising company-owned restaurants to increase McDonald’s operating margins to the mid-40% level and lower the general and administrative expenses. Taking all of these factors into consideration, Jefferies raised its 2018 EPS (earnings per share) estimates to $6.92 from an earlier estimate of $6.67. It expects the EPS to be $7.68 in 2019.

Why Did Jefferies Upgrade McDonald&#8217;s?

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Analysts’ recommendations

Of the 35 analysts that follow McDonald’s, 71.4% recommend a “buy,” 28.6% recommend a “hold,” and none recommend a “sell.”

On average, analysts expect McDonald’s stock price to reach $177.82, which represents a return potential of 2.8%. The strong 3Q17 earnings and measures adopted by McDonald’s management to drive its SSSG seem to have compelled analysts to raise their target price. On November 30, 2017, Cowen and Company raised its target price from $180 to $185.

Peer comparisons

Of the 17 analysts that follow Jack in the Box (JACK), 52.9% recommend a “buy,” 41.2% recommend a “hold,” and 5.9% recommend a “sell.” In the next 12 months, analysts expect Jack in the Box’s stock price to reach $110.07, which represents a return potential of 3.7%.

Of the 22 analysts that follow Wendy’s (WEN), 50% recommend a “buy,” 45.5% recommend a “hold,” and 4.5% recommend a “sell.” Wendy’s has a target price of $16.26, which represents a return potential of 5.8%.

Of the 12 analysts that follow Restaurant Brands International (QSR), 58.3% recommend a “buy” and 41.7% recommend a “hold.” Analysts expect Restaurant Brands International’s stock price to reach $72 in the next 12 months, which represents a return potential of 18.4%.

Next, we’ll discuss McDonald’s stock performance.

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