Credit Suisse Gives McDonald’s an Outperform rating, resulting in a surge in stock price.
Credit Suisse recently published an upgrade for McDonald’s Corporation that resulted in a market gain for the value of their stocks. The analyst at Credit Suisse, Mr. Jason West was covering McDonald’s stocks where the price target for the shares was raised by $12. This resulted in an accumulated price target of $112. The stock was given an Outperform rating where initially it was allotted a Neutral rating.
In the report, Mr. Jason West has mentioned that while McDonald’s chief executive officer has claimed about various steps that encompass finance and operations to pave its way to ability. Through such efforts, the company is likely to see improvement. Moreover, the analyst also stated that the checks also pose the chances of a turnaround in terms of same store sales in the United States, which so far has not been considered in the consensus forecast for MCD shares.
BidnessETC states, “The stock has underperformed the market significantly, having remained flat since the end of 2011. However, the analyst believes the current risk-reward standing for the stock appears attractive. The analyst sees a downside of 2-3% and upside of roughly 20% for the stock.”
According to the analyst, there are three reasons behind the upgrade. For starters, a boost in terms of sales will act as a major driving force resulting in an upside for the stocks. By the third trimestral of FY15, the firm is expecting a surge in same store sales. Secondly, an upside is also predicted by 5-6% by FY16 that will be a result of higher SSS, advantage, and SG&A cuts. Lastly, even if McDonald’s stock price plunges from the current price barriers, it will still be successful in finding support at low-90s considering the dividend stream of the company.
The target price compounded as $112 is calculated through the DCF valuation model that uses the WACC of 7.5% along with a EV/EBITDA that is by a multiple of 12x. Moreover, the target price also indicates a 13x multiple for FY16s EBITDA along with a 22x forecast of EPS for the same annum.
Considering the turmoil, McDonald’s has been dealing with over the past years, this is actually good news. If the company can hold on to investors and attract new investors, the redemption will not be an issue. The analyst also expects that investors are likely to rejoice soon since the same store sales show optimism in terms of growth in the times to come. McDonald for now needs to focus and redeem itself.