Shares of McDonald’s (MCD) are on the rise after Jefferies analyst Andy Barish upgraded the stock to Buy as he sees the company being well positioned to continue to outperform given its refranchising transformation and use of data and technology. Meanwhile, McDonald’s is said to be planning to introduce new versions of its once-iconic “dollar” menu. BUY MCDONALDS: In a research note to investors this morning, Jefferies’ Barish upgraded McDonald’s to Buy from Hold and raised his price target on the shares to $200 from $150. The analyst noted that he believes McDonald’s is well positioned in the current environment to continue to outperform. Its refranchising transformation and use of data and technology should attract a higher multiple over time, while leading to higher returns, he contends. The combination of digital, remodels and delivery with UberEats will make over 3% same store sales growth very visible with potential upside depending on how quickly initiatives gain traction, he tells investors. Further, Barish pointed out that additional efforts around national value, quality, “premiumization” and beverages could layer additional sales on top. The analyst told investors that the financial “reengineering” toward 95% franchised from 80% is nearing completion, allowing for “significant” operating margin expansion to the mid-40% level in 2018 with potentially more upside from better same store sales and continued reductions in costs expected. Barish believes his 2018 estimates could go higher on fundamentals but it will be “choppy” reported earnings per share year and consensus likely reflects a varied set of assumptions post-refranchising. WHAT’S NOTABLE: McDonald’s is said to be planning to introduce new menus with $1, $2, and $3 items early next month, according to Reuters. The burger chain giant is in a price war with rivals ranging from Yum Brands’ (YUM) Taco Bell to Wendy’s (WEN) and Dunkin’ Donuts (DNKN), the report noted, adding that McDonald’s pulled its “Dollar Menu” in 2013 after franchisees complained that selling items such as a double cheeseburger for $1 cut into profits. The new dollar menus, which are set to launch January 4, include any size soft drinks and cheeseburgers for $1, small McCafe drinks and bacon McDoubles for $2, and Happy meals and triple cheeseburgers for $3, the publication said. PRICE ACTION: In morning trading, shares of McDonald’s have gained 2% to $174.14. Year-to-date the stock is up about 43%.
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