Why McDonald's (MCD) Stock Keeps Climbing Higher

Shares of McDonald’s Corporation (NYSE:MCD) gained more than 1.6% in morning trading Tuesday after analysts from Jeffries upgraded the stock. Today’s gains were enough to send McDonald’s to a new all-time high, although the company owes its current peak to a year-long rally fueled by optimism surrounding its new-age initiatives.

“We find the combination of digital, remodels and delivery (with UberEats) will make a +3 percent U.S. same-store sales result very visible with potential upside depending on how quickly initiatives gain traction,” wrote Jefferies analyst Andy Barish.

Barish’s firm upgraded MCD to a “Buy” rating and set a price target of $200 for the stock. This bullish call represents a 17.2% upside from Monday’s closing price and is the currently the highest analyst price target for McDonald’s.

Jeffries is right to credit McDonald’s for its digital and delivery-related innovation. These new efforts have been a catalyst for the company’s current rally, which has witnessed its stock climb by a staggering 45% over the past year.

McDonald's Corporation Price, Consensus and EPS Surprise

McDonald's Corporation Price, Consensus and EPS Surprise | McDonald's Corporation Quote

Barish estimates that McDonald’s will feature delivery services at 5,000 restaurants by the end of the year. In 2018, the analysts expects an additional 2,000 stores will add delivery, with the company eventually reaching a total of 10,000 locations with delivery options by the end of 2019.

And what some investors might underestimate is the fast-food behemoth’s unique ability to execute its strategies on an international level. As Barish highlights in his recent note, McDonald’s is already doing about $1 billion worth of delivery sales in the Middle East and Asia. About 75% of American citizens live within three miles of a McDonald’s, so that vision should easily translate in the United States.

McDonald’s is working exclusively with UberEats on its delivery mission. The food delivery wing of ride-hailing giant Uber charges a $4.99 fee per order, plus a commission from McDonald’s.

Barish estimates that delivery will contribute 0.5% to the company’s same-store sales this year. In 2018 and 2019, the analyst expects McDonald’s to post 3% same-store sales growth, thanks in large part to its delivery initiatives.

Our current consensus estimates are calling for McDonald’s to report earnings of $6.94 per share and revenues of $20.39 billion in the upcoming fiscal year. Total sales are expected to slump about 10% from 2017’s projected total, but earnings per share figures are expected to expand by an additional 6.4%.

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