RBC Capital Analyst, David Palmer, slightly raised his price target on McDonald's (NYSE: MCD) after earnings beat consensus but notes that the cost savings opportunities are being held back by FX headwinds.

The 4Q results illustrate the swift pace at which McDonald's is successfully executing its turnaround plan. In the US (40% of profit), the chain outperformed its peers by 290bp. This positive gap follows a -320bp and a -650bp gap in 3Q and 2Q, respectively. That said, the company would like to see another two quarters of improving results before implementing a strategy for the "sustained growth" phase.

The SG&A outlook implies a big EPS step-up in 2017. While the company expects SG&A expense to decline 1% to 2% in constant currencies in 2016, we estimate that SG&A may drop 14% and 11% in 2017 and 2018, respectively. Given the slow start to SG&A productivity and the inclusion of the Worldwide Owner/Operator convention and the Summer Olympic Games in 2016, the majority of the $500M SG&A savings target will be realized in 2017.

2017 EPS goes from $5.92 to $6.03 (+12% YOY). 2016 projected EPS of $5.40 includes 7% of FX neutral profit growth (including heavy labor investments in 1H16) and FX headwinds of $0.08 (1.5pp) and US labor investments through 3Q16.

The price target increases slightly, from $130 to $132 but no change to the Outperform rating.

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Shares of McDonald's closed at $119.20 yesterday.