The stock price of McDonald’s has the potential to increase to as much as $120 per share, according to David Katz, president and chief investment officer of Matrix Asset Advisors.
“We think the stock easily could be $110 to $120, and you’re getting a 3.5 percent yield while you’re waiting,” said Katz during an interview with CNBC’s Squawk on the Street. He also emphasized that McDonald’s has a reasonable valuation, a global footprint.
Katz said his firm increased its stake in McDonald’s because he expects the turnaround plan of CEO Steve Easterbrook for the world’s largest fast food chain operator to be successful. He believed that there will be a good deal of upside both on the earnings, financial, and operational level if Easterbrook succeeds in fixing the company’s business.
Katz said, “The current CEO really is trying to fix things. He’s shaking things up, first with operations, then with the menu, and we think ultimately he’s going to do more for shareholders on the financial side with more aggressive share buybacks, converting the company-owned stores to the franchises.”
He also noted that Easterbrook improved the business of McDonald’s in Europe including Great Britain. He added that Easterbrook has a greater sense of urgency to fix the company than his predecessor, Don Thompson.
McDonald’s turnaround strategy
McDonald’s said it will reorganize its global operations into four segments: international lead markets, high-growth markets, the United States (accounts 40% of its operating profit), and foundational markets.
The company also intends to sell more company-owned stores to local franchisees. McDonald’s will re-franchise 3,500 restaurants over the next 48 months, bringing the total percentage of its franchisees to 90% globally, up from 81%.
Easterbrook previously stated, “I will not shy away from the urgent need to reset this business.”
Activist hedge funds acquire stakes in McDonald’s
Based on recent regulatory filings, some activist hedge funds including Corvex Management and Jana Partners acquired stakes in McDonald’s during the previous quarter. Their stockholdings in the company are worth hundreds of millions of dollars.
Katz commented, “We do know there are lots of activists, usually on the smaller side right now that are involved because they see the type of opportunities we’re looking at in the company.”