On Tuesday, BofA Securities adjusted its outlook on McDonald's Corporation (NYSE:MCD), reducing the stock price target to $288 from the previous $302 while maintaining a Neutral rating on the stock. The revision follows McDonald's reporting its lowest quarterly same-store sales growth since the first half of 2020, a period significantly impacted by the COVID-19 pandemic.
The analysis by BofA Securities highlighted that real-time spending data indicates that the sluggish sales trends for McDonald's have continued into the second quarter. A part of the slowdown is attributed to the moderation of price increases.
Moreover, the report noted that McDonald's has experienced a decline in customer traffic since the third quarter of 2023, which is now trailing behind its competitors. In contrast, Burger King has reported nearly flat U.S. traffic in the first quarter of 2024, and Wendy's (NASDAQ:WEN) guidance suggests flat to positive traffic for the same period.
The firm's analyst pointed out that despite McDonald's significant scale, which usually provides benefits in advertising, cost of goods sold (COGS), and technology, the underperformance might be due to challenging comparisons and potential issues in execution. The fast-food giant's relative stock multiple is currently at the lower end of its historical range, trading at 1.1 times the equal-weighted S&P 500 versus a 5-year average of 1.2 times.
The report concluded with a cautionary outlook, suggesting that the stock's multiple is expected to see limited expansion, with same-store sales growth anticipated to align more closely with the long-term U.S. average of 2-3%. The price objective was lowered based on a reduced market multiple, but the Neutral rating on McDonald's shares was reaffirmed by BofA Securities.
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