On Tuesday, Citi made adjustments to its outlook on shares of McDonald's Corporation (NYSE:MCD), reducing the price target from $297.00 to $280.00 while maintaining a Neutral rating on the stock. The adjustment follows observations that McDonald's shares have not performed as well as market benchmarks this year.
McDonald's has seen its shares struggle, trailing behind the benchmark by a notable 33% since the start of the year. Citi's analysis suggests that the upcoming second-quarter results and future outlook are unlikely to provide the positive news investors might be seeking to reverse the recent downward trajectory.
The fast-food giant is currently rebranding its value proposition in the United States, an initiative that is still in its infancy. Citi pointed out that McDonald's lacks a consistent national value message, with limited-time offers like the $5 Meal being the only value-focused promotion currently advertised. This strategy has not yet been able to address the decline in customer traffic.
A significant disparity between food-at-home (FAH) and food-away-from-home (FAF) inflation, which stands at 290 basis points, is also contributing to the challenges McDonald's faces. Citi believes that it will take additional time, marketing investment, and product innovation for McDonald's to effectively reposition its value image and stimulate customer traffic.
Until these efforts begin to show results, Citi anticipates that the pressure on McDonald's shares is likely to persist. The firm's analysis indicates that immediate changes in the stock's performance should not be expected in the near term.
In other recent news, McDonald's Corporation has been the subject of multiple analyst adjustments and regulatory developments. The U.S. Federal Trade Commission (FTC) has issued warnings against unfair franchise practices, a move that may have significant implications for major brands like McDonald's. Morgan Stanley has lowered its price target for McDonald's shares to $300, maintaining an Overweight rating, due to anticipated challenges in the second quarter. The firm also revised down financial forecasts for the company.
Truist Securities also reduced its price target for McDonald's from $320 to $300, maintaining a Buy rating, following an analysis of the company's second-quarter performance which showed a slight dip in sales. However, the firm noted that the impact on McDonald's adjusted EBITDA for the second quarter was minimal.
Wells Fargo has reiterated its Overweight rating on McDonald's with a steady price target of $300, noting potential growth drivers such as the brand's consistent value offerings and a possible turnaround in Paris.
UBS maintained a Buy rating on McDonald's, expressing optimism about the fast-food giant's potential for sales recovery in the second half of 2024 and into 2025.
Meanwhile, Goldman Sachs initiated a Neutral rating on McDonald's stock, acknowledging potential risks associated with McDonald's new value menu initiative, but expressing confidence in the company's significant scale and digital capabilities. Lastly, McDonald's lost a trademark dispute in the European Union, ruling that the company does not hold the rights to use the "Big Mac" name for poultry products.
InvestingPro Insights
Amidst the challenges outlined by Citi, McDonald's Corporation (NYSE:MCD) showcases some resilient financial metrics and strategic advantages. With a market capitalization of $181.27 billion and a P/E ratio that has adjusted to 20.85 over the last twelve months as of Q1 2024, McDonald's is trading at a valuation that aligns with its near-term earnings growth. Additionally, the company's dividend track record is impressive, having raised its dividend for 49 consecutive years, which could be appealing to income-focused investors.
An InvestingPro Tip suggests that McDonald's is a prominent player in the Hotels, Restaurants & Leisure industry, and its stock typically exhibits low price volatility, which might provide some stability in an investor's portfolio. Moreover, the company's revenue has grown by 10.04% over the last twelve months as of Q1 2024, indicating a solid financial performance despite market headwinds.
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