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Why Did Jefferies Upgrade McDonald’s?

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

McDonald’s Stock Rose following Upgradation

Stock performance

Jefferies upgrading McDonald’s (MCD) appears to have increased investors’ confidence, which led to a rise in McDonald’s stock price. By the end of December 5, 2017, McDonald’s was trading at $172.99—a rise of 1.4% from the previous day’s closing price.

McDonald&#8217;s Stock Rose following Upgradation

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In 3Q17, McDonald’s posted an SSSG (same-store sales growth) of 4.1% in the US—compared to analysts’ estimate of 3.6%. The better-than-expected 3Q17 SSSG and expectation of lower corporate taxes seem to have increased investors’ confidence, which increased McDonald’s stock price. Since the announcement of its 3Q17 earnings, McDonald’s stock price has risen 5.9%.

So far, 2017 has been a good year for McDonald’s. Its stock price has risen 42.1%. During the same period, Wendy’s (WEN), Restaurant Brands International (QSR), and Jack in the Box (JACK) have returned 13.7%, 27.5%, and -4.7%, respectively.

Valuation multiple

As of December 5, 2017, McDonald’s was trading at a forward PE (price-to-earnings) multiple of 24.9x. On the same day, Wendy’s, Restaurant Brands International, and Jack in the Box were trading at 28.7x, 23.7x, and 22.1x, respectively.

Analysts’ expectations

For the next four quarters, analysts expect McDonald’s to post earnings per share of $6.81, which represents 6.6% growth from $6.39 in the same four quarters of the previous year.

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