Credit Suisse Raises Estimates On McDonald's, Believes Comps Momentum Has Continued Into Q2

Credit Suisse raised 2016 EPS estimate for McDonald's Corporation (NYSE: MCD) on improved forex and a first-quarter beat.

"Investors may feel they missed this one given the re-rating of the multiple and as several major catalysts have been announced (All Day Breakfast, McPick2, leverage, G&A cuts)," analyst Jason West wrote in a note to clients.

West increased his 2016 profit estimate to $5.57 a share from $5.45 a share. Street expects earnings of $5.49 a share.

The analyst, who has an Outperform rating and $135 target price on McDonald's stock, said the evolution of the company's balance sheet and business model deserves a "permanently higher multiple."

Related Link: McDonald's Q1 Results Top Expectations

As such, West estimates 27 percent EPS growth from 2015-2017, driven by buybacks and cuts in general and administrative expenses.

"EPS/dividend growth alone could continue to push the stock higher, with potential for further upside should MCD announce meaningful new sales drivers in future quarters, most likely via comprehensive asset/tech investments, similar to what has occurred at MCD UK (40 consecutive quarters of SSS growth)," West noted.

Commenting on the second quarter, the analyst said, "The SSS momentum has continued into 2Q (US and global)." However, West sees second-quarter global same-store sales at 3.7 percent (U.S. 3.5 percent), down from 6.2 percent (U.S. 5.4 percent) in the first quarter, saying that global compares are 160bps tougher in the second quarter versus first quarter. In addition, McDonald's will also lose the benefit of Leap Day.

"We continue to believe that expectations for ~+2 percent global SSS in 2H16 are achievable, if not conservative," West added.

On Friday, McDonald's reported that its net income grew 35 percent to $1.098 billion in the first quarter. Its earnings also jumped 46 percent to $1.23 a share from $0.84 a share in the comparable period thus beating the analysts' estimations by $0.07 a share.