McDonald’s Corporation (NYSE: MCD), one of the world’s biggest fast-food chains, recently revealed that it will be introducing stricter norms for its franchisees, The Wall Street Journal said in a report.
Shares of the company rose marginally to close at $243.58 on Thursday.
In an email to franchisees, the company said the franchisees will have to go through more rigorous reviews every 20 years to keep operating their restaurants. Under this review, the company will consider factors like performance history and customer complaints to decide which franchisees can add new locations.
The company added that the franchisees will have to shell out more money to continue operating at their locations. Further, the franchisees will be allowed to nominate only a single family member as the operator of the franchisee. Under the current norm, franchisees can designate several heirs as operators.
The company will start implementing the changes from January next year.
Stock Rating
Recently, BTIG analyst Peter Saleh reiterated a Buy rating on the stock with a price target of $280, which implies upside potential of 14.9% from current levels.
According to the analyst, the company’s competitive strength remains intact as, despite menu price hikes to offset commodity and labor inflation, its sales growth has remained fairly unaffected because of its strong brand value.
Consensus among analysts is a Strong Buy based on 22 Buys and four Hold. MCD’s average price target of $279.33 implies upside potential of 14.7% from current levels. Shares have declined 8.3% over the past year.
Investors are Positive
TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on MCD, as 8.2% of the top portfolios tracked by TipRanks increased their exposure to MCD stock over the past 30 days.
Conclusion
McDonald’s move to tighten norms for its franchisees is expected to improve its operations, which, in turn, will benefit the company as a whole. Meanwhile, the company’s plan to demand more money from operators in a tough economic environment could hurt its overall growth prospects.
