Credit Suisse Raises Price Target On McDonald's (MCD), Says U.S. Inflation Concerns Overblown
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Price: $272.83 +0.21%
Rating Summary:
26 Buy, 23 Hold, 2 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
26 Buy, 23 Hold, 2 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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Credit Suisse raised their price target on Outperform-rated McDonald's (NYSE: MCD) from $89 to $92, following last week's results
The analyst said "a narrow focus on U.S. inflation overlooks the bigger picture, and investors should be buying on weakness."
Credit Suisse notes that 2-year global comps remain near 10%, and the company generates 55% of its EBIT outside the U.S.. In addition, 70% of the company's business comes from franchise/property and has no commodity exposure. "The risk is pressure on franchise unit economics, which is not a concern for MCD (unlike other QSRs,) as its franchisees remain near peak all-time cash flows," the firm notes.
Inflation is a minimal risk to McOpCo profits. "90bps of YoY pressure on U.S. CRMs implies no incremental pricing - highly unlikely given inflation in food away from home. We are modeling 1.5% price (still well below food at/away from home inflation expectations) and 50bps of pressure on U.S. CRMs-a $0.01 hit to annual EPS that is more than offset by pricing flowing through franchise royalties," the firm said.
FY11 EPS remains at $5.14, FY12 goes from $5.57 to $5.67 and FY13 goes from $6.07 to $6.21.
For more ratings news on McDonald\'s click here and for the rating history of McDonald\'s click here.
Shares of McDonald\'s closed at $76.91 yesterday.
The analyst said "a narrow focus on U.S. inflation overlooks the bigger picture, and investors should be buying on weakness."
Credit Suisse notes that 2-year global comps remain near 10%, and the company generates 55% of its EBIT outside the U.S.. In addition, 70% of the company's business comes from franchise/property and has no commodity exposure. "The risk is pressure on franchise unit economics, which is not a concern for MCD (unlike other QSRs,) as its franchisees remain near peak all-time cash flows," the firm notes.
Inflation is a minimal risk to McOpCo profits. "90bps of YoY pressure on U.S. CRMs implies no incremental pricing - highly unlikely given inflation in food away from home. We are modeling 1.5% price (still well below food at/away from home inflation expectations) and 50bps of pressure on U.S. CRMs-a $0.01 hit to annual EPS that is more than offset by pricing flowing through franchise royalties," the firm said.
FY11 EPS remains at $5.14, FY12 goes from $5.57 to $5.67 and FY13 goes from $6.07 to $6.21.
For more ratings news on McDonald\'s click here and for the rating history of McDonald\'s click here.
Shares of McDonald\'s closed at $76.91 yesterday.
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