"McDonald's: Too Soon to Buy Just Because It's Cheap...Confirm the Bottom First"[Click e-Stock]

Target Price Cuts Continue Across Securities Firms

Focus on Same-Store Sales Rebound

Ahead of Second Quarter Earnings Release

As concerns mount over declining earnings at McDonald's, analysts are suggesting that it will be important to reassess the stock's value after the upcoming earnings release on August 8 and confirmation of a bottom in same-store sales.

According to Daishin Securities on July 28, researcher Joe Jaewoon stated the previous day, "In April, a slight decrease in same-store sales was seen in both the U.S. and other major international markets," assigning a neutral investment rating. He added, "The key point for the upcoming second quarter earnings release is whether the launch of McValue 2.0 in May and June and the FIFA World Cup partnership helped offset the weakness seen in April."

A McDonald's store in Seoul. Photo by Yonhap News

Brokerages Continue to Lower Target Prices...Stock Trades at 12% Discount to Five-Year Average

Recently, major securities firms such as BTIG, Citigroup, and Wells Fargo have all lowered their target prices for McDonald's. Out of analyst reports released over the past month, 17 adjusted their target downward, while only 2 increased their target prices. Over the past 90 days, McDonald's stock has underperformed the S&P 500 Index by around 20 percentage points.

Researcher Joe explained, "The 12-month forward price-to-earnings ratio (PER) currently stands near 21 times, about a 12% discount to the five-year average of 24 times," and commented, "Option market positioning reflects a duality—on one hand, investors are hedging for downside risk, but on the other hand, they are betting on a rebound."

 

He continued, "If the operating margin remains within the 46–47% range, earnings per share (EPS) could reach between $3.35 and $3.45. However, should declines in owned-store margins and rising costs coincide, EPS could potentially fall as low as $3.20."

Simultaneous Slowdowns Across U.S., International, and Emerging Markets...Buying After Confirming the Bottom Is Preferable

The degree of sales decline by region will also be a point to watch. In the U.S., reduced dining frequency among low-income consumers has continued for nine consecutive quarters. In major international markets, currency conversion effects from a weaker dollar could provide some benefit, but factors such as slowing consumption in Europe and Australia are emerging as risks. In emerging markets, geopolitical risks in the Middle East are weighing on both pricing policies and supply chains.

The direction of the stock following the earnings announcement will likely hinge on the combination of same-store sales and earnings per share. Joe noted, "If earnings per share exceed $3.40 and U.S. same-store sales recover to the 0–2% range, a short-term rebound of around 6%, the upper end of expected options volatility, could occur."

However, he added that for a short-term rebound to lead to a full-scale stock re-rating, it will be important to also confirm an acceleration of sales in the second half of the year. Conversely, if earnings per share fall below $3.20 or U.S. same-store sales drop by more than 2%, downward revisions to earnings forecasts and target prices by brokerages are highly likely.

Joe concluded, "Although the current valuation discount has sufficiently narrowed, rather than aggressive buying before confirming the bottom in same-store sales, it is more reasonable to review the data after the earnings release and then make a move."

This content was produced with the assistance of AI translation services.