Industry Checks Suggest McDonald's Momentum Will Continue

Analysts at Stephens continue to hold a bullish view on McDonald's Corporation (NYSE: MCD) heading into earnings season for the restaurant group. The firm's Will Slabaugh maintains an Overweight rating on McDonald's stock with an unchanged $175 price target after conducting first-hand industry checks (see Slabaugh's track record here).

McDonald's has been benefiting from sales momentum and this is expected to be evident in the third quarter, but with multiple catalysts ahead the company's momentum is sustainable, the analyst commented in a research report. In fact, McDonald's favorable outlook also stems from an "aggressive improvement" of its "already-strong" franchisee base.

Also, the fast-food restaurant chain's balance sheet remains "relatively conservative," which helps support the stock's valuation, which is sitting near a historical high, Slabaugh added.

For the third quarter, McDonald's is expected to report a U.S. same-store sales growth of 3.5 percent, which is above the consensus estimate calling for a 3.4 percent gain, the analyst stated. Also, the company is expected to report an earnings per share of $1.77, which is also above the Street's consensus estimate of $1.75 per share.

McDonald's is also expected to show a growth in foot traffic in the third quarter as $1 small coffee and $2 espresso-based drinks brought more people into stores, although it did result in a lower average check price. This may prove to be a beneficial strategy over the longer-term as coffee beverages represents a "more meaningful" add-on and/or traffic driver.

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