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Vivek Kumar
McDonalds

McDonald’s Corporation, one of the world’s largest American fast-food chain, has announced to halt reopening of its U.S. restaurants for 21 days as coronavirus cases spiked to nearly 3 million with over 1.2 lakhs deaths.

The largest restaurant chain in the world witnessed over 25% fall in sales worldwide in April and May as shutting down dining rooms due to COVID-19 pandemic hurt the restaurant industry. On Wednesday, fresh coronavirus cases in the U.S. spiked by around 50,000, marking the biggest one-day jump since the pandemic began.

“Our resiliency will be tested again. COVID-19 cases are on the rise – with a 65% increase in infections over the last two weeks,” Joe Erlinger, McDonald’s U.S. president and Mark Salebra, head of the National Franchisee Leadership Alliance said in a letter seen by Reuters.

McDonald’s outlook and price target

Twenty-seven analysts forecast the average price in 12 months at $208.04 with a high forecast of $245.00 and a low forecast of $170.00. The average price target represents a 12.66% increase from the last price of $184.66, according to Tipranks. From those 27, 20 analysts rated ‘Buy’, seven analysts rated ‘Hold’ and none rated ‘Sell’.

BMO raised the target price to $220 from $215, Suntrust Robinson raised the target price to $208 from $195, Jefferies raised it to $220 from $208. Cowen and Company raised it to $210 from $208, Piper Sandler raised the target price to $190 from $170 and Stifel raised it to $182 from $175. Morgan Stanley target price is $200 with a high of $246 under a bull scenario and $134 under the worst-case scenario.

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Analyst comment

“Best-in-class asset quality, scale in advertising, other areas = structural advantages. Experience of Future (EOTF) reimages enable digital and delivery sales. MCD spends materially more on reimaging than average peers. ROIC rising, capex to fall, and FCF and return of capital to accelerate post ’19, after accounting for Covid-19 disruption,” noted John Glass, equity analyst at Morgan Stanley.

“Refranchising to 95% mostly complete, with operating margins in the mid-40% range, improved FCF and lower earnings volatility. Defensive stock, both in terms of fundamentals and low stock price volatility; better positioned for uncertain demand environment,” he added.

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