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Why Analysts Continue to Favor ‘Buy’ Ratings for McDonald’s

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Jan. 8 2019, Updated 1:55 p.m. ET

Analysts’ recommendations

Of the 32 analysts that cover McDonald’s (MCD), 78.1% have given the stock “buy” ratings, while the remaining 21.9% have given it “holds.” No analysts have given the stock “sell” ratings. 

On average, analysts have set a 12-month price target of $195.50 on the stock, which represents a potential upside of 8.5% from its current price of $180.22.

On December 19, RBC raised its price target from $190 to $205, and Barclays raised its price target from $198 to $208. Earlier, on December 17, JPMorgan Chase raised its price target from $180 to $182. On November 29, Morgan Stanley upgraded the stock from an “equal weight” to an “overweight” rating and raised its price target from $173 to $210.

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Peer comparison

Of the 32 analysts covering Starbucks (SBUX), 53.1% have given it “buys,” and the remaining 46.9% have given it “holds.” On average, analysts have set a 12-month price target of $68.60 on the stock, which represents a potential upside of 7.9% from its current price of $63.57.

Of the 26 analysts covering Wendy’s (WEN), 57.7% have given it “buys,” and the remaining 42.3% have given it “holds.” Analysts have set an average price target of $19.33 on the stock, which represents a potential upside of 19.6% from its current price of $16.16.

Of the 17 analysts tracking Jack in the Box (JACK), 43.8% have given it “buys,” and the remaining 56.3% have given it “holds.” Analysts have set an average price target of $93.69 on the stock, which represents a potential upside of 15.0% from its current price of $81.44.

Valuation multiple

As of January 7, McDonald’s was trading at a forward PE multiple of 21.9x compared to 20.6x before the announcement of its third-quarter earnings results. The increase in McDonald’s stock price has also increased its valuation multiple. On the same day, its peers Starbucks, Wendy’s, and Jack in the Box were trading at forward PE multiples of 23.2x, 24.4x, and 16.9x, respectively.

McDonald’s is currently trading at 23.3 times analysts 2018 EPS expectations and 21.9 times analysts’ 2019 EPS expectations, with its EPS expected to rise 16.4% in 2018 and 6.2% in 2019.

Next, we’ll look at analysts’ revenue expectations for 2018 and 2019.

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