McDonald’s Corp (NYSE: MCD) and its investors have had a great 2018, but Morgan Stanley analyst John Glass says 2019 will be even better. Glass has upgraded MCD stock from “equal weight” to “overweight” and says the company’s efforts to update and modernize its restaurants will soon pay off in a big way.
According to Glass, the market isn’t fully valuing the impact that McDonald’s store modernization efforts and updated business model will have on the company’s bottom line. McDonald’s has spent recent years implementing CEO Steve Easterbrook’s Experience of the Future initiative, which involves adding in-store technology such as kiosks and improving mobile and delivery options.
“We are endorsing the notion that McDonald’s massive store modernization efforts, first rolled out in select international markets and now in the U.S., will begin to pay off in 2019 and should produce best-in-class sales results for more years to come,” Glass says.
He also says McDonald’s is a safe haven for long-term investors. “McDonald’s provides a stabilizing, defensive counterbalance in a volatile market environment,” he says.
The S&P 500 index is down 6.1 percent since Oct. 1, but MCD stock is up 14.2 percent in that time.
Bank of America analyst Gregory Francfort recently attended the McDonald’s Canada Analyst Day event and says the Canada market is giving investors a glimpse into the future.
“The market represents just 8 percent of (earnings before interest and taxes), but is similar to the U.S. and has been ahead of its larger neighbor on key initiatives,” Francfort says.
He says McDonald’s Canadian market has shifted from a potential turnaround story to a consistent growth source, and investors can expect similar results in the U.S. market. “MCD did not give significant reimaging sales lift data for Canada but noted the 4 to 6 percent lifts it cites have been very consistent across countries,” Francfort says.
Francfort says McDonald’s has had success in Canada leveraging its loyalty program to drive digital sales, growing kiosk ordering to 25 percent of in-store orders and increasing its delivery mix of total sales, particularly in urban centers like Toronto.
In addition to the “overweight” rating, Morgan Stanley has a $210 price target for McDonald’s. Bank of America has a “buy” rating and $200 target for MCD stock.
More from U.S. News