Investing.com - Evercore analysts increased their target price for McDonald’s Corporation (NYSE:MCD) on Monday, now set at $320, up from $300, reflecting a bullish outlook on the company's US business recovery through the latter half of 2024 and into 2025.
This optimistic stance comes amid signs of market share improvement and stronger brand perception, highlighted by the recent success of promotional campaigns like commemorative cups.
Evercore analysts are increasingly positive about McDonald’s prospects, anticipating solid performance in the US market throughout 2025. They attribute this confidence to emerging positive trends and expect these to continue, bolstered by strategic changes in value offerings and menu introductions at various price tiers.
Reflecting this bullish sentiment, the analysts have adjusted their same-store sales (SSS) estimates, revising the 3Q US SSS projection from a 1% decline to flat year-over-year and increasing the 2025 outlook from 2% to 3%.
Though McDonald’s current price-to-earnings (P/E) ratio of 23x next twelve months (NTM) earnings per share (EPS) is in line with historical averages, improving US SSS and easing Federal Reserve rates are expected to enhance the stock's relative performance.
The analysts emphasized that McDonald’s pricing power during the COVID-19 pandemic led to significant price increases, which surpassed those of many competitors and outpaced wage growth.
This aggressive pricing strategy has recently been identified as a challenge, evidenced by a dip in drive-thru traffic and overall value perception.
To counter these issues, McDonald's is taking steps to enhance its value offerings and focus on growth segments like chicken and beverages.
The company is expected to roll out more value-oriented marketing, such as the "4 for $5" deals, and bring more menu innovations in the first half of 2025.
Historically, McDonald’s has faced traffic declines—down approximately 20% since 2012—but has compensated with significant check growth, particularly during COVID-19.
The current valuation of McDonald’s is seen as fair but not overly attractive, trading at its 10-year average P/E ratio after a recent bounce.
Despite this, Evercore analysts believe the potential for improved SSS and easing rate cycles could lead to stronger total returns, making the stock a worthwhile consideration for long-term investors.
Overall, Evercore's analysis underscores the importance of traffic stabilization for McDonald's future success. The company's approach to addressing value perception and supporting menu innovation is seen as crucial in driving growth and maintaining its market position.
With expected improvements in value marketing and easing international comparisons starting in the fourth quarter, McDonald’s is poised for a period of recovery and growth, which the analysts believe will support a target price of $320.