Cowen Met With McDonald's Management: Here's What Happened

Cowen’s Andrew M. Charles maintained a Market Perform rating on McDonald's Corporation (NYSE: MCD), while raising the price target from $116 to $125.

Sustaining The Momentum

Following investor meetings with Senior Director of Investor Relations Jen Hiser, Charles mentioned that the company continues to be focused on sustaining the underlying momentum from the U.S. comp increase of 5.7 percent in 4Q through the implementation of sales initiatives for 2016 and beyond.

“This will be driven by the core tenets of McDonald's turnaround playbook including an increased emphasis on value, with two national McPick 2 tests so far in 2016 and a nat'l value platform launch expected later this year,” Charles said.

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The company is also expected to improve its speed of service through its current menu and ops simplification initiatives, along with improving order accuracy, menu enhancements related to increased quality and better cooking techniques.

“A similar level of pricing relative to ~2 percent in 2015 is expected in 2016. Underperforming stores will continue to be pruned, with net closures expected to be similar to the 90 in 2015,” Charles stated.

National Level Platform

The analyst believes that the two national McPick 2 tests in 2016 demonstrate the company’s desire to include different price points as well as menu items as part of its national value platform, which is expected to be launched later in 2016.

“As MCD intensifies the focus on value, we believe the aggressive QSR discounting environment will persist further in 2016 so long as the commodity environment remains tame as competitors seek to retain market share,” according to the Women report.

The EPS estimates for 2016, 2017 and 2018 have been raised from $5.26, $6.06 and $6.50 to $5.40, $6.10 and $6.55, respectively.

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