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Wells Fargo upgrades McDonald’s, says fast food giant is ‘firing on all cylinders’

Chaim Potok by Chaim Potok
September 7, 2023
in Investing
Wells Fargo upgrades McDonald’s, says fast food giant is ‘firing on all cylinders’
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There are reasons to be bullish on McDonald’s in the second half of this year, Wells Fargo said. Analyst Zachary Fadem upgraded the fast-food chain to overweight from equal weight. His $310 target price for shares reflects an upside of 12.5% from where the stock closed Wednesday. “Despite well-telegraphed deceleration, we see upside to 2H,” he told clients. And even after beating comparables in the first and second quarter, “we believe MCD is just getting started.” Fadem said the company’s “innovation engine is firing on all cylinders,” while international markets are performing better than expected. He also said the company has no shortage of levels to pull to buoy business in the event of a broader slowdown among quick-service restaurants. McDonald’s shares have sold off more than the broader market since its second-quarter earnings report in late July. To be exact, the stock is down about 6%, while the S & P 500 has slid 2%. Following that underperformance, Fadem said there’s “an opportunity to own a best-in-class operator heading into a new unit acceleration cycle.” He also pointed to the fact that the stock’s price-to-earnings multiple has fallen about 11% since the company first announced plans to accelerate unit growth in January. Unit acceleration could come in above 4% in the 2024 fiscal year, Fadem said, which would help support McDonald’s premium valuation. And accelerated unit growth is just one way McDonald’s can growth its earnings per share in the 2024 fiscal year, Fadem said. He also pointed to comparable store sale momentum, margin pressure easing and easy international franchise comparable as other drivers. McDonald’s marketing also can’t be ignored, he said. The company has a meal highlighting menu items featured in movies; a World Cup campaign; and a new peanut butter crunch-flavored McFlurry to market in the third quarter. Those follow the the success of the meal based on the purple blob Grimace . Shares climbed 1.2% before the bell on Thursday. The stock has underperformed the broader market this year, up about 4.5% year to date. — CNBC’s Michael Bloom contributed to this report



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