UBS has updated its outlook on McDonald's Corporation (NYSE: NYSE:MCD), increasing the price target to $345 from the previous $305.
The firm maintains a Buy rating on the stock, citing the fast-food giant's promising position for an improved U.S. sales trajectory through the remainder of 2024 and into 2025.
UBS highlights McDonald's momentum and a series of business catalysts that could drive market share gains despite ongoing macroeconomic challenges and sales pressures affecting the broader category.
The optimism from UBS is partly based on recent initiatives by McDonald's, including the introduction of the $5 Meal Deal and plans for a permanent national value platform.
These efforts, along with menu innovation and marketing strategies, are expected to contribute to stronger sales. Conversations with McDonald's franchisees have revealed positive trends in traffic and sales, bolstered by the success of the $5 meal deal, which is improving customer traffic with better check dynamics, and recent marketing activities.
Despite near-term pressures from the U.S. and international macroeconomic environment, UBS anticipates that McDonald's will benefit from easier comparative sales in the future and a robust path of catalysts leading into 2025.
These factors are projected to unlock an improved growth trajectory in the U.S. and support gains in the company's share price. The correlation between McDonald's valuation and its share price is noted to be greater than 0.7.
In other recent news, McDonald's Corporation has seen a series of upgrades and downgrades from various financial firms. KeyBanc raised its price target for McDonald's to $330, maintaining an Overweight rating, based on strong sales outlook and strategic changes.
However, the firm's earnings per share (EPS) estimates for 2024 and 2025 remain unchanged. On the other hand, Citi has also raised its price target for McDonald's, maintaining a Neutral rating, due to the anticipation of a strong third-quarter performance.
Meanwhile, Baird increased its price target for McDonald's to $320, reflecting optimism about the company's third-quarter performance, particularly in the U.S. BTIG maintained a Neutral rating on McDonald's shares, following franchise checks that suggest an improving sales trend. However, the firm remains cautious about the recovery extending beyond the U.S. market.
In addition to these financial assessments, McDonald's has faced disruptions to its supply chain due to a labor strike at U.S. ports, causing significant shortages in beef and seafood. The company has responded by increasing its stock to ensure continuity of supply.
InvestingPro Insights
Building on UBS's optimistic outlook for McDonald's Corporation (NYSE:MCD), recent data from InvestingPro provides additional context to the company's financial performance and market position. McDonald's boasts a substantial market capitalization of $216.57 billion, underscoring its dominant position in the fast-food industry. The company's revenue for the last twelve months as of Q2 2024 stood at $25.76 billion, with a healthy revenue growth of 6.46% over the same period.
InvestingPro Tips highlight McDonald's strength as a dividend stock, having raised its dividend for 49 consecutive years. This consistent dividend growth, coupled with a current dividend yield of 2.35%, aligns with UBS's positive outlook on the company's financial stability and growth potential. Additionally, McDonald's stock has shown strong performance, with a 23.53% price total return over the past three months, supporting UBS's observation of the stock's recent 15% increase since the second-quarter earnings report.
It's worth noting that InvestingPro offers 12 additional tips for McDonald's, providing investors with a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable in light of UBS's upgraded price target and the anticipated catalysts for growth in 2024 and 2025.
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