Why Credit Suisse Sees McDonald’s Rising Much More

Credit Suisse analyst Jason West raised his rating on McDonald’s from Neutral to Outperform and boosted his price target from $100 to $112 a share. In his analysis, West noted that out of about 30 sell-side analysts, only eight currently maintain a Buy-equivalent rating on the stock.

West offers three reasons for his rosy view of Mickey D’s:

1. Sales are turning around. The company expects global same-store sales to turn positive in the third quarter, led by strength in key international markets and an elimination of the albatross of supplier problems in Asia. Credit Suisse’s own checks of U.S. same-store sales indicate improvement in the United States as well, “driven by operational and menu changes.” West expects the all-day breakfast menu to strengthen the fourth quarter as well.
2. Potential upside of 5% to 6% to current fiscal year 2016 forecasts. West bases this estimate on higher same-store sales, cuts to SG&A and leverage.
3. The company’s dividend yield of nearly 3.5% puts support for the stock at a share price in the low $90-range.

The analyst’s price target assumes 13 times estimated 2016 EBITDA and 22 times estimated 2016 earnings per share. Credit Suisse also raised its earnings per share estimate for fiscal 2016 from $5.10 to $5.11.

McDonald’s stock traded up about 1.6% at $97.51 shortly before noon Tuesday, in a 52-week range of $87.50 to $101.88. The consensus price target on the stock is $103.16 and the high target is $120.00 per share.

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