McDonald's Corporation MCD is scheduled to report first-quarter results April 30, and Stephens shifted to a neutral stance on the restaurant chain ahead of the print.
The Analyst
Stephens' Will Slabaugh downgraded McDonald's' stock rating from Overweight to Equal Weight with a price target lowered from $185 to $170.
The Thesis
Despite the downgrade, McDonald's long-term story remains compelling, Slabaugh said in a Monday note.
The company's streak of posting strong mid-single digit comp growth over the past few quarters should "not be considered the norm," the analyst said. A more realistic same-store sales assumption growth figure for the U.S. is 2-percent growth and 2.9-percent growth globally, he said. These figures still represent a "good" year for a restaurant chain, with average unit volume that's double that of McDonald's closest peers, Slabaugh said.
Sell-side estimates of a resurgence to 3.5-percent comps in the second through fourth quarters are "optimistic," the analyst said.
The analyst is modeling for McDonald's to earn $1.65 per share in Q1 on same-store sales growth of 2 percent. By comparison, the Street is expecting the company to earn $1.67 per share on same-store sales growth of 3.2 percent.
"Although we remain constructive on the brand longer-term and have confidence in the management team's ability to sustain a low-single digit comp trajectory, we are moving to the sidelines and see shares as fairly valued at this point," the analyst said.
Price Action
Shares of McDonald's were trading down 0.50 percent after the open Monday.
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