Nomura chose the burger chain as its top 2018 restaurant stock in a Jan. 2 note, rating shares as "buy" and increasing their target price to $190 from $180. If Nomura's trajectory for McDonald's is on point, that would mean a 10.4% rally for shares this year.
McDonald's momentum is driven by several key factors, analysts said. First, the chain is benefiting from an ongoing rollout of fresh patties in its restaurants. It's testing freshly made "Archburgers" in seven markets, increasing the size of fresh patties available.
McDonald's new Dollar Menu is set to go national Jan. 4. With options at the $1, $2 and $3 price points, the company is expanding its affordable menu with smart promotions in a return to value pricing. The Dollar Menu was wildly popular following its introduction in the 1990s, but the company increased prices in 2013 during a sales slump. Now that profits are back up, the Dollar Menu is returning to its roots.
Plus, Mickey D's is rapidly snatching market share from struggling Subway, which is the third-largest restaurant chain in the U.S. The quick-service market is increasingly becoming McDonald's game, Nomura said. McDonald's is far and away the largest U.S. quick serve chain by sales, tallying $36.4 billion in 2016, according to Nation's Restaurant News. Subway had $11.3 billion in sales.
Lastly, McDonald's could follow through on its first stock split in nearly two decades, Nomura wrote, which would draw in retail investors.
The positive factors drove Nomura analysts to raise their 2017 earnings target by two cents to $6.55. In 2018, earnings are expected to reach $7.05, up 12 cents from Nomura's earlier prediction. And for 2019, Nomura raised its target by 12 cents to $7.65.
McDonald's stock gained 0.49% to $172.96 premarket Tuesday. Over the last year, shares rallied 41%.
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