McDonald’s is taking short term pain for long term gain

McDonald’s CEO Steve Easterbrook orders at a kiosk.Steve Easterbrook/AP

• McDonald’s has been aggressively updating its US stores under its Experience of the Future initiative. 
• McDonald’s now has 5,000 Experience of the Future restaurants in US and will add 4,000 more by this year.
• The fast-food chain is taking short term pain for long term gain, Jefferies analysts said.
• Watch McDonald’s trade in real-time here.

McDonald’s is taking short term pain for long term gain when remodeling its fast-food experience, says a team of analysts from Jefferies.

The fast-food giant has been aggressively updating its US stores under its Experience of the Future initiative, which focuses on restaurant modernization and digital engagement. On the company’s second-quarter earnings call, CEO Steve Easterbrook said there are now 5,000 EOTF restaurants. 

“The Company expects capital expenditures for 2018 to be approximately $2.4 billion,” McDonald’s said in a July 26 press release.

“About $1.5 billion will be dedicated to our U.S. business, primarily focused on accelerating the pace of EOTF. We expect to complete EOTF at nearly 4,000 additional U.S. restaurants in 2018, and, as a result, about half of the total U.S. restaurants will have EOTF by the end of 2018.” 

Jefferies thinks McDonald’s efforts on service model, digital channels, and loyalty initiatives are paying off, suggesting the use of the mobile app for some dollar deals helps drive downloads and Mcdonald’s $1/2/3 platform still gains traffic in a very competitive environment. That will reaccelerate the company’s US same store sales into fiscal year 2019, they said. 

The team has a “buy” rating on McDonald’s, with a $190 price target — 18% above where shares are currently trading.