Courtesy of Benzinga.
According to a research note from UBS, McDonald’s Corporation (NYSE: MCD) has performed well recently, and is slated to continue in its success.
The analysts maintained their Buy rating on the issue, and raised the price target from $125 to $131, citing upward potential ahead.
“Sales drivers […] support our upside to consensus estimates, also supporting shares,” the analysts began.
Share Gains Catalyst
“We aren’t going to spend time in this note rehashing all-day breakfast momentum and the imperative for continuous value throughout the menu,” UBS stated, “These are givens.”
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Therefore, UBS emphasized the following catalyst that are likely to help usher in continued share gains.
Product Upgrades: Following each past ingredients’ upgrades, McDonald’s benefitted financially, “MCD saw solid improvement in sss from these upgrades even prior to the launch of all day breakfast.” Beyond those upgrades already taken place and upgrades announced by McDonald’s including Chobani Greek Yogurt parfaits and smoothies, the analysts suggest a revamp to McNuggets, “An ingredient upgrade to Chicken McNuggets, as an example, could have huge potential [emphasis omitted].”
Product Innovation: Similarly, the analysts highlight past innovations and suggest a few of their own ideas for menu bolstering, including “products such as the Chicken McGriddle can work on a national basis, and what about: McSpicy Chicken Sandwich, McBrunch Burger, Chicken Mac or McButter Burger?”
Digital Adoption: While McDonald’s digital adoption and functionality is “modest” at this point, the analysts see this area as a potential blockbuster, “Specifically, mobile order & payment and loyalty (and perhaps even delivery considerations) are two essential components of a successful digital platform that we’d like to see sooner rather than later.”
Remodeling: As seen in the past, McDonald’s has experienced significant success from remodeling and upgrading their physical locations; citing recent completed projects and planned remodelings, UBS stated that the “remodel program is a prudent use of capital […] This could include up to 1,000+ per year potentially and provide a solid sss lift going forward.”
Rich Uncle Pennybags: “This year we look for an improvement in U.S. promotional games and marketing tie-ins […] we expect the likely return of Monopoly, which sat 2015 out. Other similar promotional efforts […] can provide important buzz and demand.”
Simplicity: Amid the catalysts of upgrading and innovating, simplicity is also key. “Following the recent elimination of 7–10 low moving, low margin menu items, we expect continued culling to simplify menu and operations,” according to the analysts.
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