McDonald’s seems to be gaining momentum on many fronts as the business approaches its second quarter profit announcement and UBS believes that its stock could benefit.
This year, the fast-food company’s stock has lagged behind the broader market. They have also fallen 1.6 percent in the last three months.
However, UBS analyst Dennis Geiger stated in a client note on Tuesday that the company was performing well in both domestic and international markets. He also predicted that McDonald’s would outperform expectations in its earnings report on July 28.
According to UBS, McDonald’s will earn $2.12 per share in the second quarter, which is higher than the consensus of $2.09 per share.
“Our franchisee checks indicate continued US comp momentum through 2Q and into 3Q, with optimism that strength in underlying trends can largely persist,” according to the note.
According to the note, there are several reasons to expect sales in the United States to remain strong, including President Joe Biden’s new monthly Child Tax Credit payment.
“Sales should benefit from the recent US loyalty launch, [additional] marketing campaigns, national/local promotions (i.e. $1 beverage), ongoing chicken sandwich ad support, and Child Tax Credit benefits,” according to the note.
UBS rates the stock as a buy with a $260 price target, which is 13.4 percent higher than where it closed on Monday.
Best stocks ahead of earnings
The earnings season began last week. According to FactSet, approximately 85 percent of S&P500 companies that have reported thus far have outperformed expectations.
Morgan Stanley’s chief U.S. equity strategist, Mike Wilson, believes that earnings will surprise to the upside in 2021, but that valuations will fall to offset some, if not all, of the positive earnings revisions.
“Stock selection will be critical to outperformance,” he predicted.
In light of this, Morgan Stanley has identified a number of companies whose stock prices it believes will rise significantly in the event of an earnings surprise.
Check out the bank’s list here:
According to Morgan Stanley analyst Betsy Graseck, the market is still underestimating the impact of consumer spending on American Express earnings. Credit-card spending is increasing as the vaccine rollout continues, she discovered, and large-cap banks reported 40 percent to 50 percent year-over-year increases in card spending.
“Amex is the biggest beneficiary of higher card spending due to more of a swipe-fee focus with less reliance on lending,” Graseck said.
Delta Air Lines also mentioned on their earnings call last week that their Delta/Amex co-branded card is seeing very strong growth, she added. Morgan Stanley has set a price target of $171 per share on American Express.
Cushman & Wakefield and Simon Property Group were also named to Morgan Stanley’s list of top earners.
Cushman & Wakefield will benefit from leasing and capital market revenue, according to the firm. Morgan Stanley’s second-quarter Cushman estimates are 20% higher than the Street’s. The bank sees high vaccination rates in the United States, as well as leasing decisions pushed back from last year, benefiting the commercial real estate firm.
Cushman & Wakefield is valued at $19 per share by Morgan Stanley.
According to analyst Richard Hill, mall operator Simon Property Group should beat and raise earnings in the second quarter.
“While retail faces escalating secular challenges, we see multiple drivers of earnings growth for SPG and a multiple that screens cheap relative to strip REITs and retailers themselves,” Hill said. “Rent from tenants who have survived COVID-19 should provide a steady cash flow where earnings can grow again.”
Simon Property Group has a $150 per share price target from Morgan Stanley.
Gogo was also included on the list, as the bank believes the in-flight internet company saw strong demand in the private travel industry after the pandemic lockdowns were lifted.
“Management noted that customer traffic trends by customer segment were up by 106 percent -144 percent compared to 2019 levels, and that after market equipment demand was very strong,” Morgan Stanley analyst Simon Flannery told clients. “More recently, in early July, fractional ownership provider NetJets announced that it had ‘temporarily suspended’ light jet sales due to ‘unprecedented demand in the private travel industry.”
Morgan Stanley has set a price target of $13 per share on Gogo.
Gartner, dLocal, NCR Corp., SVB Financial, and Skechers were also named to Morgan Stanley’s list of high-conviction earnings.