McDonald's has gotten hit hard with worries about disruption to its business stemming from the Russian invasion of Ukraine. Yet Cowen & Co. argues that its thriving U.S. business can offset weakness in Europe.
Analyst Andrew Charles reiterated an Overweight rating and $275 price target on McDonald's (ticker: MCD) stock on Tuesday. He writes that while McDonald's gets about 40% of its sales from Europe, historically U.S. same-store sales have had a greater impact on the stock's performance—and on that score, there's reason for optimism.
Charles argues that strength in the domestic market can "overshadow international challenges," both near and long term. "We believe McDonald's is well positioned to gain share based on competitive advantages in scale and a U.S. store-remodel program that we expect to be largely completed before peers in 2022 due to stronger franchisee cash flows," he writes.
McDonald's shares are down more than 9% year to date, and Charles believes the company isn't getting enough credit for multiple tailwinds. McDonald's is building on its success in digital ordering and new products featuring chicken—which carries higher margins than beef—while staffing issues likely peaked in late 2021.
Moreover, in an inflationary environment, the company also looks to have an edge: Cowen survey data shows that McDonald's clearly dominates in terms of perceived value among lower-income consumers. That research showed Wendy's (WEN) matching McDonald's score, and Barron's noted that that restaurant's value menu could help it gain share this year as well.
McDonald's is up 0.6% to $244.50 in recent trading.
Even before the conflict, McDonald's had a rocky start to the year, delivering downbeat earnings in January, and the Street is divided on how well its partnership with Beyond Meat (BYND) is performing.
Still, the shares remain an analyst favorite, with nearly three quarters of the 36 analysts that cover the shares rating it at Buy or the equivalent, according to data from FactSet. The average analyst price target of $281.67 has only inched marginally lower this year.