January 18, 2011 / 12:01 PM / 9 years ago

McDonald's a good inflation play, well priced: RBC

(Reuters) - McDonald’s Corp will up prices 2 to 3 percent in 2011 to fight inflation, RBC Capital Markets said, raising the fast-food chain a notch to “outperform.”

McDonald’s has been taking U.S. market share from rivals like No. 2 hamburger chain Burger King as it tempted diners with low-priced food on its U.S. Dollar Menu, renovated restaurants and, in some markets, longer operating hours.

But November global sales were below expectations hit by weak demand in United States and Japan.

“Pricing should aid comparable sales and make it easier for McDonald’s to deliver low- to mid-single digit sales,” analyst Larry Miller wrote in a note.

Higher pricing, new product extensions and revamped stores will also help earnings, Miller said.

Concerns of slowing traffic in the United States, cold weather conditions and VAT increases in the UK have pulled down the company’s shares, but weather is a short-term concern, analyst said.

“We think comps should up low single digits-mid single digits in 2011, allowing the company to meet or exceed consensus of $5.00 in 2011,” the analyst said.

McDonald’s shares are down almost 9 percent since their year-high of $80.94 in early December. They were slightly up at $74.79 on Tuesday morning before the markets opened.

Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Joyjeet Das

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