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McDonald’s: 'They’re in a stage now where they can grow'

Analyst Jim Sanderson upgraded shares of McDonald's from Neutral to Buy, following the fast food giant's recent restructuring.

McDonald's (MCD) is better positioned for growth, following a recent restructuring that included layoffs, promotions and new roles for U.S. employees.

"We really think what's coming out of that, is a broader strategic restructuring, where you're going to have an organization in the U.S. that is more streamlined, more centralized," Northcoast Restaurant Research Analyst Jim Sanderson told Yahoo Finance. He upgraded the company's shares from neutral to buy on Monday following last week's layoffs.

Sanderson added: "They're in a stage now where they can grow."

In his note, he said that this restructuring should "harness overhead expenses while creating an organization engineered for store development." This year, McDonald's plans to opened 1900 locations, marking its largest growth move since 2014. More than 400 of the new Golden Arches will be in the U.S. or in its internationally operated markets, including the U.K., Germany, Canada, France, Australia and Canada.

"I think that they are looking at what their business needs are currently and how they can adapt that and really get back to a position where you're starting to generate some leverage on that investment in overhead," he said, "not necessarily grow it [in order] to drive growth."

To that end: McDonald's tapped Tabassum Zalotrawala as Senior Vice President and U.S. Chief Development Officer. Zalotrawala previously served as Chief Development Officer at Chipotle (CMG) where she led Chipotle’s expansion including the introduction of new, digital formats.

"They've got a new team and new team structure developed...now they're bringing on new leadership that is really adept at technology and technology applications. I think that's exactly what restaurants in the United States need," Sanderson said.

CHICAGO - MARCH 08:  McDonald's Headquarters in the Fulton Market neighborhood in Chicago, Illinois on March 8, 2020.  (Photo By Raymond Boyd/Getty Images)
CHICAGO - MARCH 08: McDonald's Headquarters in the Fulton Market neighborhood in Chicago, Illinois on March 8, 2020. (Photo By Raymond Boyd/Getty Images)

One possible yellow flag when it comes to restructuring: an impact on culture, Sanderson said.

It's "something we want to be aware of and watch...I think that's always to challenge in these transitions," he said. Often, layoffs leave remaining workers feeling overwhelmed—and overall, the firings can lead to lower morale.

However, he added, "McDonald's has successfully restructured their employee base, and come out of it stronger, and we're hoping that that will be exactly the same outcome this round too," he said.

In the latest quarterly report, McDonald's said it expects inflation pressures to continue, coming off a year that saw global comparable-store sales rise 10.9%, with U.S. comps rising 5.9%. As of Tuesday, Wall Street analyst ratings include 30 buys, 11 holds and 1 sell. Year-to-date shares are more than 8 percent.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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