On Tuesday, Citi maintained a Neutral rating on McDonald's Corporation (NYSE:MCD) but lowered the price target to $297.00 from the previous $312.00. The adjustment follows a period of underperformance by the fast-food giant's shares, which have declined by 10% year-to-date, contrasting with a 6% gain in the S&P 500 over the same period.
The reassessment by Citi comes amid concerns about McDonald's recent sales data and the upcoming first-quarter earnings. The analyst cited the impact of promotional activities by competitors, such as Wendy's (NASDAQ:WEN) NCAA promotion, which may have contributed to the high-frequency data showing pressure on McDonald's shares.
The difficulty in justifying a valuation-based or data-driven case for owning McDonald's shares ahead of what the analyst describes as a "rock and a hard case" first-quarter earnings setup was noted.
McDonald's outlook for same-store sales growth in the U.S. and its International Operated Markets (IOM) is also a focus, with guidance set at 3%-4% for 2024. The analyst pointed out that if McDonald's retreats from this guidance, it could lead to downward revisions in estimates. Conversely, if the company maintains its optimistic forecast, it could be perceived as a bearish signal.
The report highlighted several areas that could potentially change Citi's stance on McDonald's stock. These include a better understanding of McDonald's earnings blind spots, such as the implications of its recent acquisition in Israel, its exposure to the China market, and any potential aid to franchisees.
Additionally, the analyst would look for a clearer strategy regarding a national value campaign in the U.S. before adopting a more positive view on the shares.
InvestingPro Insights
As McDonald's Corporation (NYSE:MCD) navigates a challenging market environment, insights from InvestingPro reveal several key metrics that may be of interest to investors. With a market capitalization of $192.23 billion, McDonald's stands as a significant player in the fast-food industry. The company's P/E ratio, currently at 22.91, suggests that the stock is trading at a valuation that reflects its earnings. Moreover, the P/E ratio adjusted for the last twelve months as of Q4 2023 is slightly lower at 22.25, indicating a relative stability in earnings valuation over the recent period.
The PEG ratio for the same period stands at 0.59, which could imply that the stock is undervalued based on its earnings growth. Additionally, McDonald's has shown a solid revenue growth of 9.97% over the last twelve months as of Q4 2023. This financial performance is coupled with two notable InvestingPro Tips: McDonald's has raised its dividend for an impressive 49 consecutive years, signaling a strong commitment to returning value to shareholders. Also, the RSI suggests the stock is currently in oversold territory, potentially presenting a buying opportunity for investors.
For more detailed analysis and additional InvestingPro Tips, investors can visit https://www.investing.com/pro/MCD. There are a total of 10 InvestingPro Tips available for McDonald's, providing a deeper dive into the company's financial health and stock performance. To gain access to these insights, remember to use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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