McDonald’s Ups the Ante for franchisees

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McDonald’s Corporation (NYSE:MCD), one of the world’s largest fast food chains, recently announced that it will introduce stricter standards for its franchisees, The Wall Street Journal specified in the report.

Shares of the company rose slightly on Thursday to close at $243.58.

In an email to the franchisee, the company said franchisees would have to go through stricter controls every 20 years in order to continue operating their restaurants. As part of this review, the Company will consider factors such as performance history and customer complaints to decide which franchisees can add new locations.

The company added that franchisees would have to pay more money to continue working in their place. Also, franchisees can only designate one family member as franchisor. Under the current standard, franchisees can name multiple heirs as operators.

The company will start implementing the changes from January next year.

Evaluation of actions

Recently, BTIG analyst Peter Saleh reiterated his view on buying the stock with a price target of $280, which means upside potential of 14.9% from current levels.

According to the analyst, the company’s competitive strength remains intact as sales growth has remained fairly intact despite rising menu prices to offset commodity and wage inflation due to the brand’s strong value.

Analyst consensus is a Strong Buy, based on 22 buys and four holdings. MCD’s average price target of $279.33 means upside potential of 14.7% from current levels. Over the past year, shares are down 8.3%.

Investors are positive

Stock Investors by TipRanks shows investors are currently very bullish on MCD, as 8.2% of the top portfolios tracked by TipRanks have increased their exposure to MCD stocks over the past 30 days.

Conclusion

McDonald’s move to tighten standards for its franchisees is expected to improve its operations, which in turn will benefit society as a whole. The company’s plan to charge more money from operators in a tough economic environment could hurt its overall growth prospects.

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