On Monday, KeyBanc has increased its price target for McDonald's Corporation (NYSE:MCD) shares to $330 from the previous target of $305. The firm maintains an Overweight rating on the fast-food giant's stock. The adjustment comes as McDonald's has seen a notable 20% rise over the past three months, notably outpacing the S&P 500 by approximately the same margin during the period.
The recent surge in McDonald's stock value is attributed to the company's rapid shift in strategy, moving away from a pricing battle to refocusing on marketing and innovation. This shift has successfully changed consumer perceptions about the brand's value proposition. KeyBanc's decision to raise the price target is supported by proprietary data and discussions within the industry.
KeyBanc has also revised its third-quarter 2024 same-store sales (SSS) growth estimate for McDonald's U.S. operations upward while maintaining its above-consensus SSS growth estimate for the fourth quarter of 2024. The firm's confidence in McDonald's near-term sales strategies underpins its continued Overweight rating.
Despite the increased SSS growth projections for the U.S., the firm's earnings per share (EPS) estimates for 2024 and 2025 remain unchanged. This is due to the higher U.S. SSS growth being balanced by a slight decrease in the International Operated Markets (IOM) segment's SSS growth. The new price target reflects a 25.3 times multiple of KeyBanc's anticipated 2025 EPS for McDonald's.
In other recent news, McDonald's Corporation has faced disruptions to its supply chain due to a labor strike at U.S. ports, causing significant shortages in beef and seafood, essential ingredients in its products. The strike has also impacted other industries, potentially leading to price inflation and further supply chain complications. In response, suppliers and importers have increased their stocks to ensure continuity of supply.
McDonald's has also been the subject of several analyst actions. Citi has updated its outlook on the fast-food giant, raising the price target while maintaining a Neutral rating. The firm expects McDonald's to outperform its competitors in U.S. same-store sales for the third quarter. Meanwhile, Baird raised its price target for McDonald's to $320, reflecting an optimistic view of the company's third-quarter performance, particularly in the U.S.
BTIG has maintained a Neutral rating on McDonald's shares, following franchise checks that suggest an improving sales trend. The firm now expects a 0.5% increase in U.S. comps for the third quarter. However, BTIG remains cautious about whether the recovery extends beyond the U.S. market.
TD Cowen has also maintained a Hold rating on McDonald's shares, expressing anticipation about the potential U.S. launch of the new Big Arch burger. Amid these developments, McDonald's reported earnings per share (EPS) of $2.97 for the quarter, falling short of the consensus estimate. These are some of the recent developments that have made headlines for McDonald's Corporation.
InvestingPro Insights
McDonald's recent performance aligns with KeyBanc's optimistic outlook. According to InvestingPro data, the company's stock has shown a strong 21.68% return over the last three months, corroborating KeyBanc's observation of a 20% rise. This robust performance is further emphasized by McDonald's trading near its 52-week high, with its current price at 98.96% of that peak.
InvestingPro Tips highlight McDonald's financial stability and growth potential. The company has raised its dividend for 49 consecutive years, demonstrating a commitment to shareholder returns that complements its stock appreciation. This is particularly noteworthy given McDonald's dividend yield of 2.33% and a significant dividend growth of 16.45% over the last twelve months.
While KeyBanc maintains an Overweight rating, investors should note that McDonald's is trading at a high P/E ratio of 26.36 relative to its near-term earnings growth. This valuation metric suggests that the market has high expectations for the company's future performance, aligning with KeyBanc's increased price target.
For readers interested in a deeper analysis, InvestingPro offers 11 additional tips on McDonald's, providing a comprehensive view of the company's financial health and market position.
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