McDonald?s Looks Strong Ahead of EPS, But Upside Limited?

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Analysts at Sterne Agee boosted their revenue and earnings projections for McDonald’s ahead of its fourth quarter earnings announcement before the bell Tuesday.

McDonald’s (MCD) likely produced same-store sales growth of 6% in December, and should continue to gain share in the quick-service restaurant category given the value price of its food and upgrades to stores, write Sterne Agee analysts Lynne Collier and Philip May.

The wild card: the impact of rising costs on margins on the global fast-food giant. Collier and May expect to see restaurant operating margin of 18.2%, which is a decline of 80 basis points quarter over quarter, due to commodity price increases.

The stock closed up 48 cents Friday, or 0.47% to $101.74. That’s 5% above Sterne Agee’s price target of $106. The analysts raised their fourth-quarter earnings estimate by 2 cents Friday to $1.30. They also raised their revenue target for McDonald’s fourth quarter to $6.785 billion from $6.66 billion.

That assumes same store sales will rise 6.5%, versus their previous estimate of 5.3%. They see a 6.2% rise in U.S. same-store sales; 6.1% in Europe and 6.1% in McDonald’s Asia/Pacific/Middle East territory. They maintain a Buy rating and write:

“Based on our checks, we believe that McDonald’s top-line performance remained strong throughout the fourth quarter … Our investment thesis remains intact as we believe that McDonald’s will continue to gain market share in the quick service restaurant industry given significant marketing power, an entrenched value perception, menu innovation and upgraded facilities.”

Original Article Source by Barrons.com