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BTIG maintains Neutral on McDonald's amid mixed results

EditorLina Guerrero
Published 10/29/2024, 04:04 PM
MCD
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On Tuesday, BTIG maintained its Neutral stance on shares of McDonald's Corporation (NYSE:MCD) following a mixed financial report. The fast-food giant recorded a slightly better-than-expected earnings per share (EPS), despite experiencing weaker same-store sales across its three reporting segments. The company's stock remained steady as concerns regarding the impact of last week's food safety incident have begun to diminish. Additionally, there is growing confidence in McDonald's ability to attract customers.

The report highlighted that McDonald's has achieved a notable recovery with positive comparable sales in the U.S. this quarter. However, this positive trend has not been as evident in many of its international markets. BTIG pointed out the challenges in projecting EPS growth for McDonald's over the next year, citing the absence of a permanent value offering in the U.S. and a general consumer malaise in several key international markets.

McDonald's performance in the U.S. was a standout, with the company managing to return to positive comparable sales figures this quarter. This achievement is particularly significant given the broader context of the market and the recent food safety concerns that had the potential to deter customers.

Despite the positive domestic sales, McDonald's international segments did not mirror this success. The analyst from BTIG expressed difficulty in forecasting significant EPS growth due to current market conditions and strategic offerings. The analyst's remarks underscore the uncertainty surrounding McDonald's international performance and its influence on the company's overall financial outlook.

In conclusion, while McDonald's has shown resilience in the U.S. market, BTIG's outlook remains cautious. The firm's Neutral rating reflects the complexities of anticipating the company's earnings potential amid varying global market conditions and strategic challenges.

In other recent news, McDonald's Corporation revealed a significant 1.5% drop in global sales for the third quarter, the largest decrease in four years, exceeding analysts' expectations of a 0.72% fall. This decline is attributed to reduced demand in key markets, including Europe and the United States. The company is also grappling with the aftermath of an E. coli outbreak linked to its Quarter Pounder burgers, which led to a temporary removal of the product from its U.S. outlets.

Investigations have identified slivered onions as the likely source of the E. coli infection. Despite these challenges, McDonald's reported earnings of $3.23 per share on an adjusted basis, slightly higher than the $3.20 forecasted by analysts. McDonald's U.S. comparable sales showed a marginal improvement of 0.3%, aided by various promotions.

Internationally, sales fell by 2.1%, with France and Britain contributing to this weakness. Sales in the segment operated by local partners in China and the Middle East dropped by 3.5%, contrasting with the 10.5% increase seen in the previous year. These are recent developments, and the situation continues to evolve. As a result of the outbreak, Baird analyst David Tarantino has downgraded McDonald's stock to "neutral," while Wedbush analysts predict that any negative effects will be minimal and short-lived.

InvestingPro Insights

To complement BTIG's analysis, recent data from InvestingPro offers additional insights into McDonald's financial health and market position. The company's market capitalization stands at an impressive $211.75 billion, reflecting its dominant position in the fast-food industry. This aligns with the InvestingPro Tip highlighting McDonald's as a "prominent player in the Hotels, Restaurants & Leisure industry."

Despite the challenges mentioned in the article, McDonald's has demonstrated strong profitability. The company's operating income margin for the last twelve months as of Q2 2024 was 45.67%, indicating efficient operations even in the face of varying global market conditions. This robust profitability is further supported by an InvestingPro Tip noting that McDonald's has been "profitable over the last twelve months."

Investors should also note McDonald's commitment to shareholder returns. The company boasts a dividend yield of 2.39% and has raised its dividend for 49 consecutive years, as highlighted by another InvestingPro Tip. This consistent dividend growth may provide some reassurance to investors amidst the uncertainty in international markets mentioned in the article.

For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on McDonald's, providing a deeper understanding of the company's financial position and market outlook.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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