Shares of McDonald's (MCD) - Get Report were up over 1% in market trading Tuesday morning as Jefferies upgraded the restaurant company to "Buy" from "Hold" and increased its price target to $200 from $150.
Jefferies said they "find MCD well-positioned in the current environment to continue to outperform and raise our rating...based on 17x '19E EV/EBITDA and our DCF. The transformation of McDonald's ownership (refranchising), and use of data and technology (digital/delivery/EOTF) should attract a higher multiple over time, while leading to higher returns. These factors help drive our above consensus US SSS and '19E EPS".
They noted that "financial 'reengineering' toward 95% franchised (from 80%) is nearing completion, allowing for significant operating margin expansion to the mid-40% level in '18 (and beyond) with potentially more upside from better SSS and continued reductions in G&A expected."
Jeffeires said they will "raise our '18 EPS estimate to $6.92 (from $6.67) and intro '19 EPS above consensus at $7.68, and are willing to pay a premium multiple for MCD given its brand momentum and positioning as somewhat defensive should consumer spending slow and remain value/conveniencefocused.
They believe their 2018 estimates could go "higher on fundamentals but realize it will be choppy reported EPS year and consensus likely reflects a varied set of assumptions post refranchising."
Also, Oak Brook, IL-based McDonald's announced a new $1, $2, $3 Dollar Menu, which will begin January 4, offering its customers several items. "We built this new menu with variety and value firmly in mind," said Chris Kempczinski, president, McDonald's USA, in a statement.
More of What's Trending on TheStreet: