On Friday, UBS adjusted its outlook for McDonald's Corporation (NYSE:MCD), lowering the price target to $335 from the previous $340, while sustaining a Buy rating on the stock. The firm's analyst cited several factors influencing the decision, including McDonald's recent statements about international macroeconomic pressures and persistent challenges faced by lower-income consumers in the United States.
According to the analyst, despite these challenges, McDonald's is expected to improve its sales trajectory throughout the year and increase its market share in key areas. The assessment was based on the UBS Evidence Lab 2024 Quick Service Restaurant survey, which evaluated McDonald's pricing, brand perception, and customer visit intentions.
The findings suggest that McDonald's remains one of the best-positioned brands in the quick-service restaurant sector, maintaining strong value scores even as pricing may have affected customer perceptions.
The UBS analyst has maintained a 2% estimate for McDonald's U.S. same-store sales, aligning with the consensus of 2.7%. However, the forecast for International Operated Markets (IOM) same-store sales has been reduced to 1% from the earlier 2.5%, below the consensus of 3.4%.
Additionally, the International Developmental Licensed (IDL) segment's same-store sales are now anticipated to decline by 1%, a downward revision from the previous expectation of a 0.5% increase and against a consensus of a 0.9% rise.
The revised predictions also led to a decrease in the first-quarter earnings per share (EPS) estimate to $2.63 and the 2024 earnings estimate to $12.24. Despite near-term pressures, the analyst expressed optimism about McDonald's prospects for 2024, highlighting the potential benefits from customers trading down to less expensive options and an acceleration in same-store sales throughout the year.
The report also noted that McDonald's shares have lagged year-to-date, offering attractive valuation opportunities. With the stock trading at approximately 20 times the estimated 2025 earnings per share, the analyst believes McDonald's shares are appealing due to the company's resilient business model, defensive characteristics, and opportunities for market share gains.
InvestingPro Insights
InvestingPro data underscores McDonald's Corporation's robust financial health and market positioning. With a market capitalization of $195.02 billion and a P/E ratio of 23.34, which adjusts to a slightly lower 22.58 based on the last twelve months as of Q4 2023, McDonald’s demonstrates a solid valuation framework. The company also boasts a healthy revenue growth of 9.97% over the same period, signaling its ability to increase sales amidst economic challenges.
Two InvestingPro Tips that are particularly relevant to the article include McDonald's history of raising its dividend for 48 consecutive years and the stock's current position in oversold territory according to the RSI. These insights suggest that McDonald's not only remains committed to returning value to shareholders but also may present a buying opportunity for investors considering the stock's recent price movements. Additionally, the company's low price volatility and status as a prominent player in the Hotels, Restaurants & Leisure industry further affirm its stability and competitive strength as highlighted by UBS.
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