Morgan Stanley upgrades McDonald's on store modernization: 'Buying the McDonald's of the future' 

  • Morgan Stanley upgrades the fast-food chain's stock to overweight from equal weight.
  • "McDonald's massive store modernization efforts ... will begin to pay off in '19," Morgan Stanley's John Glass says.
  • "The market is potentially underappreciating" McDonald's modernization efforts, he tells clients.
Steve Easterbrook, CEO McDonald, poses with Ronald McDonald.
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Steve Easterbrook, CEO McDonald, poses with Ronald McDonald.

Morgan Stanley is "buying the McDonald's of the future today," the firm says in upgrading the fast-food chain's stock to overweight from equal weight.

"We are endorsing the notion that McDonald's massive store modernization efforts, first rolled out in select international markets and now in the US (its single largest market), will begin to pay off in '19 and should produce best in class sales results for more years to come," Morgan Stanley's John Glass said in a note to investors Thursday.

McDonald's shares closed 0.8 percent higher in trading.

Glass said "the market is potentially underappreciating" these modernization efforts, and he expects McDonald's will soon have a "structurally improved" business model. He added that McDonald's is a key "defensive" stock "during periods of economic slowing." McDonald's shares outperform the market 60 percent of the time when the S&P 1500 is declining and the CBOE Volatility Index is rising.

"McDonald's provides a stabilizing, defensive counterbalance in a volatile market environment," Glass said.

Morgan Stanley raised its price target on McDonald's to $210 a share from $173 a share

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