McDonald's Continues to Grow Despite Market

Posted: July 17, 2008, 9:10 AM by David Pett
Market Call
The Street could be underestimating McDonalds Corp.'s earnings growth potential as the storied fast food retailer makes the turn into the second half of the year.
That's the opinion of UBS analyst David Palmer, who reiterated his "buy" rating on the stock and left his US$69 price target unchanged.
"While dividend increases will continue to support valuation, we believe return of investment capital gains and earnings per share upside should remain the key stock drivers in the second half of 2008 and beyond," Mr. Palmer said in a note to clients.
In particular, the analyst said certain EPS drivers are being underestimated by the consensus, including supply chain changes the company has made and greater general & administrative efficiency. He said McDonalds can also expect sales upside from new European kitchens and the launch of new beverages as the company rolls out iced coffees and teas across the U.S.
Mr. Palmer raised his second quarter EPS estimate from US85¢ to US87¢ on expectations of better margins and a slightly higher currency in the quarter. He forecasts June's same store sales growth of 2% in the U.S., 4% in Europe and 4% in Asia Pacific, the Middle East and Africa.
David Pett -->