By Alysha Khan
McDonald’s Corp. new CEO Steve Easterbrook took office March 1 and security analysts are cautiously hopeful that he will be able to revive the struggling fast-food giant.
“It’s going to take time for Steve to put his imprint on things,” said Jack Russo, senior analyst at Edward Jones.
The stock currently has a 67.7 percent hold rating from analysts, 22.6 percent buy rating, and a 9.7 percent sell rating. Only three of the 29 analysts covering the company changed their ratings after the announcement.
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For the first quarter of 2015, analysts are predicting an EPS of $1.10 per diluted share, compared with $1.21 in the year prior quarter. For the full year 2015, analysts are predicting an EPS of $5.08, compared with $4.82 in the year prior.
Russo said Easterbrook’s first priority will be improving U.S. same-stores sales, or sales at locations open more than 12 months. Same-store sales have been falling since 2013, beginning approximately six months after former CEO Don Thompson took office.
Russo added that the current economic backdrop will help Easterbrook boost sales. Consumer confidence is at an eight year high and gas prices remain under $3.
“We are seeing Burger King, Wendy’s, even KFC, show some pretty respectable numbers,” he said. “McDonald’s really should be doing better than it is.”
Russo argued that the company will need to pare down the menu as well as launch some new innovative items to help improve sales and subsequently the stock price. Under Thompson’s tenure, the fast-food chain’s stock remained stagnant even as the Dow Jones Industrial Average rose 36 percent.
“Once sales start going in the right direction, the stock price should follow,” Russo said.
But Karen Holthouse, analyst at Goldman Sachs, is more skeptical of any of the new initiatives the company might undertake.
“We do not see investors focused on a particular silver bullet that could act as a catalyst,” Holthouse wrote in a research note.
Holthouse stated that while they expect the company to focus on improving ingredients and simplifying the menu under Easterbrook, they did not expect “revolutionary” changes. Her man concern was that it takes time to change the movement of such a large company, whether it be reversing falling sales or making changes to the supply chain.
On Wednesday, McDonald’s Corp. announced its first initiative under the new management. Over the next two years, it will phase in chickens free of antibiotics intended for humans to all its U.S. stores. However, the chickens will still get antibiotics, but antibiotics that are not intended for human medicine.
“Once sales start going in the right direction, the stock price should follow.”
– Jack Russo, senior analyst at Edward Jones
The company also announced this week that it will offer customers low-fat white milk and fat-free chocolate milk from cows that have not been treated with a growth hormone.
David Palmer, restaurant analyst at RBC Capital Markets, wrote in a research note that the “road to improvement begins with quality in the U.S.” and that he is confident in the company under its new leadership. After Wednesday’s announcement, Palmer improved his rating of the stock from a hold to a buy.
Palmer argued while many large consumer brands face core perception problems that are difficult to escape, McDonald’s core perception will be easier to shift through “mass personalized marketing” and “digital engagement”.
“We are confident that change is likely to occur soon with new strategic thinkers at the helm that can accelerate the pace of change,” he wrote.
