CREDIT SUISSE: McDonald's has unlocked 'pent-up earnings power'

McDonald’s had a killer first quarter, and that has much of Wall Street bullish on the company’s stock.

McDonald’s reported first quarter earnings of $US1.47 on Tuesday, above the Wall Street consensus of $US1.34. The news has pushed the firm’s stock to new heights.

But a duo of equity analysts at Credit Suisse think the best is yet to come for McDonald’s stock price.

“After showing negligible EPS growth from 2011-16, CEO Easterbrook and team are starting to unlock pent-up earnings power of brand McDonald’s,” the bank said in a note out to clients on Wednesday.

According to Credit Suisse, McDonald’s impressive first quarter demonstrates that the burger maker can deliver healthy earnings per share growth moving forward. In response, the bank raised their expectations for EPS for 2017/2018 to $US6.32/$US6.67 from its original $US6.08/$US6.54 estimate.

“While this quarter does not mean MCD is suddenly a growth company, the result shows that MCD can achieve healthy EBIT and EPS growth against the headwind of refranchising,” the bank said.

McDonald’s impressive same-store sales in Q1 is another reason why Credit Suisse is bullish on the stock.

“MCD’s US SSS outperformed fast food peers by 210bps in 1Q, a sharp improvement from 300bps underperformance in 4Q16,” the bank said.

Global sales at stores open for at least one year rose by 4%, crushing the consensus estimate for an increase of 1.3%.

According to McDonald’s, all-day breakfast and new sizes for the chain’s signature Big Mac played a key role in boosting sales.

Credit Suisse is lovin’ the stock. The bank has raised its price target for McDonald’s stock from its original target of $US137 to $US157, above the current market price of $US141 per share.

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