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Analyst predicts McDonald's will report strong sales on its value promotions

  • Nomura Instinet raises its third-quarter same-store sales growth estimate for McDonald's to 3.9 percent from 3.3 percent on better-than-expected restaurant checks.
  • "We believe that drivers of the Q3 U.S. business included value oriented promotions (such as $1 any size soft drinks and a McPick 2 for $5 promotion)," the firm's analyst said.
Ronald McDonald balloon is seen at the 90th Annual Macy's Thanksgiving Day Parade on November 24, 2016 in New York City.
Noam Galai | Getty Images
Ronald McDonald balloon is seen at the 90th Annual Macy's Thanksgiving Day Parade on November 24, 2016 in New York City.

Consumers are flocking to McDonald's, according to one Wall Street firm.

Nomura Instinet reiterated its buy rating for the restaurant chain's shares, saying McDonald's will report sales above Wall Street expectations.

"Based on the results of our McDonald's Franchisee Survey, we raise our Q3 U.S. same-store sales forecast," analyst Mark Kalinowski wrote in a note to clients Tuesday entitled "Franchisee Survey Indicates MCD More than Holding Its Own."

"We believe that drivers of the Q3 U.S. business included value oriented promotions (such as $1 any size soft drinks and a McPick 2 for $5 promotion)."

McDonald's shares rose 0.5 percent midday Tuesday after the report. The stock is up 36 percent year to date through Monday versus the S&P 500's 14 percent gain. Kalinowski raised his price target for McDonald's shares to $183 from $176, representing 11 percent upside from Monday's close.

The analyst said it talked to 27 domestic franchise owners with nearly 240 stores. He noted the northeast and western regions showed the most sales strength, while southern states lagged. As a result, Kalinowski increased his McDonald's third-quarter comparable sales growth estimate to 3.9 percent from 3.3 percent versus the Wall Street consensus of 3.4 percent.

"Given the better-than-expected sales momentum in the U.S. and Japan, and McDonald's status as a relative 'safe haven' stock during challenging times in the broader consumer landscape, we raise our target multiple on 2018E EPS by 1.0x to 26.0x," he wrote.

Famed short seller Jim Chanos told CNBC PRO in Sept. he is betting against other burger chain stocks because of McDonald's recent resurgence.