Argus Downgrades McDonald's To Hold Citing Rising Labor Costs & Slowing Comp Sales
Although McDonald's Corporation (NYSE: MCD) reported strong Q2 earnings, its overall revenue and same-store sales were short of expectations. The company is likely to face pressure from decelerating comp-store sales growth and rising labor costs over the next several quarters, Argus’s John Staszak said in a report. He downgraded the rating on the company from Buy to Hold.
McDonald’s reported its Q2 operating EPS at $1.45, ahead of the consensus estimate of $1.39. The beat was driven by higher restaurant margins and share buybacks. The company’s revenue came in at $6.3 billion, down 4 percent year-over-year, and marginally below the consensus estimate. Although overall same-store sales were up 3.1 percent, they missed the consensus forecast of 3.6 percent growth.
Management indicated a widening gap in the prices of restaurant food and food at home. This could continue to adversely impact restaurant traffic and comp sales, Staszak noted.
The EPS estimates for 2016 and 2017 have been reduced from $5.60 to $5.50 and from $6.30 to $6.20, respectively, reflecting prospects for higher labor costs and slower growth in comp-store sales, the analyst mentioned.
McDonald’s shares are currently trading close to their five-year peak. At a relatively high valuation, the share price adequately reflects the benefits from management’s turnaround plan. “Based on our expectations for rising labor costs and slower growth in same-store sales, offset in part by gains from restaurant refranchising, we expect limited share price appreciation over the next 12 months,” Staszak commented.
Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email email@example.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!
Latest Ratings for MCD
|Oct 2016||Telsey Advisory Group||Initiates Coverage On||Outperform|
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.