Deutsche Bank Pounds The Table On McDonald's (MCD), Upgrades to Buy
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Deutsche Bank upgrades McDonald's (NYSE: MCD) from Hold to Buy, citing valuation, positive upcoming catalysts and attractive cash flow. The firm raised its price target from $60 to $65.
On valuation, the firm notes MCD now trades at 13.6x forward 12-months EPS, the lowest multiple since early 2003 and below the 5-yr avg. of 16.0x and the restaurant industry avg. of 16.1x. Further, with the dividend yield at an all-time high.
On upcoming catalysts, the firm cites:
- McCafe (now in +10k locations vs. 1k a year ago; national advertising launched on May 5th),
- easing commodity pressures (guidance looks conservative here) and
- currency overhang likely goes away in 4Q.
On cash flow, the firm sees see ~$4.00/sh in earnings power in 2010, even under a bearish demand scenario (2% comps), a 50bps decline in rest. margin and no SG&A leverage. Also, the firm expect MCD to return nearly 25% of the current market cap to shareholders (via share repurchases and dividends) over the next 3 years.
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