McDonald's Dips to 52-Week Low on Weak November Comps - Analyst Blog

Shares of McDonald's Corp. (MCD) dropped to a 52-week low of $87.62 on Dec 16. McDonald's has been experiencing decreasing same-store sales, declining stock price and shrinking base of young customers for quite some time now. The company has been affected by intense competition in the U.S. market, and has struggled with food safety issues in its most profitable markets overseas. Shares of the company plunged 6.7% over the past month.

McDonald's' November comps decreased 4.6% in the U.S., far worse than analysts' expectation of 1.9% drop and 1% decline in October.

In fact, global comps for November declined 2.2%, for the sixth consecutive month, with the highest decline recorded in the domestic market. The decline compared unfavorably with 0.5% drop in October and the year-ago increase of 0.5%. Moreover, it was worse than analysts' expectation of 1.7% decline.

Heightened competition and a few unwise decisions have slowed down service and are hurting comps in the domestic market. The introduction of too many items in 2013 has impacted both service and orders. The company has been losing customers to fast-casual chains that focus on just a few menu items. Moreover, competition has intensified with these fast-casual food chains providing healthier options and fresh ingredients instead of the processed food offered by McDonald's.

Further, the company's profitable international business has been hit hard by the supplier scandal in China and Japan, which lowered comps in Asia in November. Also, Europe was hit by poor performance in Russia where the company is facing pressure from consumer safety regulators leading to temporary closure of restaurants. In addition, negative results in France and Germany hurt comps.

In Russia, this Zacks Rank #5 (Strong Sell) stock has also faced headwinds regarding food safety standards. The Russian consumer protection agency – Rospotrebnadzor – has filed a lawsuit against the restaurateur in a Moscow court stating that its food items contain more fat and carbohydrates than the permissible standards in the country.

Stocks to Consider

Better-ranked restaurant stocks that are performing well at the current level include BJ's Restaurants, Inc. (BJRI), DineEquity, Inc. (DIN) and Papa John's International Inc. (PZZA). While BJ's Restaurants and DineEquity sport a Zacks Rank #1 (Strong Buy), Papa John's International carries a Zacks Rank #2 (Buy).

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