Wall Street starts to turn on McDonald's
4 analysts downgrade the stock the day after a disappointing quarterly report.
Four analysts downgraded the company's stock on Wednesday, a day after the Oak Brook, Ill.-based company posted a disappointing second-quarter profit and full-year outlook amid a continued sales slowdown in the key markets of the U.S., Germany, Japan and Australia.
"The deteriorating fundamentals increase the likelihood of activist involvement," said Rachael Rothman, an analyst at Susquehanna Financial. She said the company's turnaround is taking longer than she expected and downgraded the stock to neutral from positive.
While McDonald’s Chief Executive Don Thompson evoked a sense of urgency on a conference call Tuesday, Wall Street said substantial improvement in sales and customer visits likely won't come any time soon. Meanwhile, the company is facing cost pressures, including higher prices for meat and other items.
U.S. sales at McDonald’s fell 1.5 percent as its low-income shoppers cut back on eating out or increasingly opt for the dollar menu items. Meanwhile, upper-income consumers are heading to chains like Chipotle, which reported a 17 percent jump in second-quarter sales.
To be sure, McDonald's isn't the only restaurant struggling to attract more consumers. NPD Group data on Wednesday showed U.S. consumers made some 61 billion visits to restaurants in the year through May, still below the pre-recession traffic levels by about 1.3 billion visits.
"There are some fundamental shifts in how consumers, particularly low- and middle-income consumers, address their discretionary spending," said Bonnie Riggs, NPD’s restaurant industry analyst. "Similar to the stalled growth other retail sectors are experiencing, restaurants are being negatively impacted by a large segment of the population who are watching their discretionary spending closely. Going to a restaurant is a nice-to-have and not a need-to-have."
McDonald's share of the global fast food market has declined to 13.7 percent in 2013 from a peak of 14.6 percent in 2009, according to Euromonitor data. In the U.S., market share has dropped during each of the past two years.
The percentage of analysts who now rank McDonald’s shares a buy has declined to 29 percent, the lowest level in at least five years, FactSet data showed.
Here's what some other analysts had to say:
Lynne Collier at Sterne Agee: McDonald's "pipeline of new products has been lackluster," leading to market share losses. As we look forward, we do not see identifiable catalysts to reverse that trend." She lowered her view on the stock to neutral from buy.
Will Slabaugh at Stephens: "The lack of successful and differentiated products at low-to-mid tier level hasn't improved guest frequency." He cut his rating on McDonald's to equal-weight from overweight and lowered his rice target to $100 from $115.
David Tarantino at Robert W. Baird: "We are disappointed by the persistently sluggish (comparable sales) trends in recent periods." The declines in June and July "underscore the difficulty in regaining positive sales momentum amid a challenging/competitive environment." He lowered his rating to neutral from outperform.
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[BRIEFING.COM] The stock market ended the Wednesday session on a mixed note. The tech-heavy Nasdaq displayed relative strength, climbing 0.4%, while the S&P 500 added 0.2% with five sectors settling in the green. For its part, the Dow Jones Industrial Average (-0.2%) spent the entire session below its flat line.
Equities started the midweek affair on a rather unassuming note in the absence of market-moving news or economic releases. With those pieces missing from the equation, ... More
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