Earnings Outlook: McDonald’s earnings: ‘$1 $2 $3 Dollar Menu’ should give same-store sales a boost

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McDonald’s value menu should give a boost to same-store sales say franchisees and analysts.

McDonald’s Corp. is scheduled to report fourth-quarter 2017 earnings on Tuesday before the market opens.

Instinet analysts asked franchisees how much same-store sales impact the chain’s new “$ 1 $ 2 $ 3 Dollar Menu” will have, and the response was upbeat. “The average response we received was +1.4%, and the median response we received was +1.5%,” analysts said. The result was based on 26 responses.

Still, some franchisees expressed concern about drops in average check value and the menu’s ability to drive sales over the long term.

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For the fourth quarter, Instinet forecasts a 4% increase. Instinet rates McDonald’s shares MCD, -0.28% buy with a $ 198 price target.

“[R]etailers, restaurants, and brands providing unparalleled value to the consumer are seeing acceleration in top-line versus peers,” wrote Cowen analysts in a January note. Cowen’s top picks among “deep-value themed stocks” are Burlington Stores Inc. BURL, +0.58%   , Ross Stores Inc. ROST, -0.51%  , Wal-Mart Stores Inc. WMT, +0.85%   , McDonald’s and Monster Beverage Corp. MNST, -0.99%  .

Here’s what to expect:

Earnings: McDonald’s is expected to report earnings of $ 1.59 per share, according to FactSet analysts, up from $ 1.47 last year.

Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, expects per-share earnings of $ 1.62.

McDonald’s beat FactSet earnings estimates for all but one of the last 10 quarterly reports. In that one case, earnings were in line with consensus.

Revenue: FactSet analysts expect sales of $ 5.23 billion, down from $ 6.03 billion last year but below the Estimize estimate of $ 5.30 billion.

McDonald’s beat FactSet revenue estimates for eight out of the last 10 quarters. In one case, revenue was in line with the FactSet consensus.

The FactSet same-store-sales forecast is up 4.9%.

Read: McDonald’s supersized growth potential spells trouble for competing fast-food chains

Share price: McDonald’s shares are up 7.5% for the last three months, and up 44.7% for the last year.

The Dow Jones Industrial Average DJIA, -0.37% is up 13.6% for the past three months and 32.5% for the past year.

Other issues:

• Analysts at J.P. Morgan recommend McDonald’s for the long term.

“We focus investors on the company’s free cash flow generation, and fiscal 2020+ free cash flow potential matched with low sensitivities to comps and margins (both company-owned and franchise) and the company’s move to a lower-risk business model via refranchising,” analysts wrote in a January report.

J.P. Morgan rates McDonald’s shares overweight with a $ 186 price target.

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• Contrary to franchisee commentary, RBC Capital Markets think McDonald’s pricing strategy is maintaining average check totals.

“The ‘barbell’ approach of $ 1 any size soft drink and premium priced Signature Crafted sandwiches has recently been helping the chain deliver traffic-driven growth, but with a stable check,” analysts wrote in a note published Monday.

Going forward, analysts think digital and delivery efforts, value pricing, menu changes like the use of fresh beef, asset improvements, and a focus on operations will maintain same-store sales growth.

RBC rates McDonald’s shares outperform with a $ 190 price target.

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