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Why Stephens Downgraded McDonald’s

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Stephens’ recommendation

On April 16, 2018, Will Slabaugh of Stephens downgraded McDonald’s (MCD) from “overweight” to “equal weight.” He also lowered his 12-month target price from $185 to $170, which represents a return potential of 8.3%.

In his research note, Slabaugh wrote that although McDonald’s was able to post SSSG (same-store sales growth) in the mid-single digits in the last few quarters, especially in the US region, investors should not consider this the norm. He has forecasted the company’s SSSG to be at 2.0% in 2018, while the analyst consensus is at 2.9%.

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Other analysts’ recommendations

On March 6, 2018, Credit Suisse lowered its 12-month target price on the stock from $191 to $175. RBC also cut its target price from $190 to $170 on March 2, 2018. Overall, analysts are expecting the company’s stock price to reach $186.46 in the next 12 months, which represents a return potential of 15.4%. Of the 33 analysts that follow McDonald’s, 66.7% are favoring a “buy,” and the remaining 33.3% are favoring a “hold.” None of the analysts recommended a “sell.”

McDonald’s stock tends to move in tandem with analysts’ ratings. When analysts raise their target price, the stock price of the company moves up, and vice versa. Currently, McDonald’s is trading below analysts’ 12-month target price. However, this does not mean an automatic “buy.” Investors are advised to analyze various analysts’ estimates, which we’ll discuss in our next article, before making any investment decisions.

The target price and return potential of McDonald’s peers are as follows:

  • Wendy’s (WEN) has a target price of $18.84 with a return potential of 8.9%.
  • Jack in the Box (JACK) has a target price of $103.86 with a return potential of 16.7%.
  • Starbucks (SBUX) has a target price of $63.78 with a return potential of 7.3%.

Next, we’ll look at McDonald’s stock performance.

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