McDonald’s Corporation (NYSE: MCD) investors have been hungry for returns so far in 2018, with the stock down 6.8 percent since Jan. 1. However, analysts say McDonald’s slumping performance is simply a short-term phenomenon, and the company’s underlying business makes it one of the most attractive long-term investment opportunities in the restaurant space.
McDonald’s filed a new 10-K form with the U.S. Securities and Exchange commission this week updating some key numbers on the early stages of its Experience of the Future initiative. According to the filing, McDonald’s opened 929 units in 2017 while closing 587 others. In addition, the company reported that new store capital expenditures dropped from $674 million in 2016 to $537 million in 2017 despite the fact that the company opened 33 more stores in 2017 than in 2016.
[See: 8 Ways to Satisfy a Craving for Restaurant Stocks.]
Looking ahead to 2018, McDonald’s mentioned several growth drivers in the critical U.S. market, including its recently launched $1, $2, $2 Dollar Menu, its fresh beef offering and its additional seasonal McCafe offerings. McDonald’s also said its mobile app has 20 million registered users, up from 11 million at the end of 2016.
Delivery, mobile ordring and kiosk ordering are three of the key components of the Experience of the Future transition, and McDonald’s is hoping its heavy investments in technology will help improve its sales growth.
Bank of America analyst Gregory Francfort is optimistic about the stock’s potential.
“We think that a 5.7 percent free cash flow yield for a business growing system-wide sales 5 to 6 percent with best-in-class unit economics is attractive,” Francfort says.
He says McDonald’s 2.5 percent dividend will provide support for the stock until the Experience of the Future effort starts making a meaningful impact on the company’s numbers.
“Change is being implemented at the corporate level and in the large U.S. and European markets that has potential to lead to improved sales and earnings,” Francfort says.
[See: 7 of the Best Stocks to Buy for 2018.]
Unfortunately, BMO Capital Markets analyst Andrew Strelzik says investors will likely have to weather a lackluster first-quarter earnings report before the numbers start to improve.
“Against lowered near-term expectations and valuation discount to peers, we expect U.S. comps to reaccelerate and investor focus to return to MCD’s strong cash flow profile on normalized capex,” Strelzik says.
Bank of America has a “buy” rating and $180 price target for McDonald’s. BMO has an “outperform” rating and $190 target for MCD stock.
More from U.S. News
7 of the Best Emerging Markets Stocks to Buy
8 Ways to Satisfy a Craving for Restaurant Stocks
7 ETFs to Profit From Recent Tax Cuts
McDonald’s Corporation (MCD) Is Approaching a Turning Point originally appeared on usnews.com
