McDonald’s Corp (NYSE: MCD) ended in the red this evening after a Citi analyst issued a 90-day negative catalyst watch on the fast-food company.
McDonald’s has a greater exposure to Europe
Jon Tower does not a see meaningful upside in this stock as it’s more exposed to “Europe” than its peers. On CNBC’s “Closing Bell”, he said:
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Operating environment for the brand in Europe will become more challenging and FX headwinds are not being accounted for correctly in Street estimates. With earnings risk and the stock near multi-year highs, it’s hard to see a lot of upside.
Tower has a price objective of $246 a share on “MCD” – roughly in line with its previous close. Lingering COVID restrictions in China, he added, were also a headwind for McDonald’s.
In July, the restaurant chain reported lower-than-expected revenue for its fiscal second quarter.
Higher energy prices to hit demand
The Citi analyst warns of a hit to demand as higher energy prices in Europe weigh on spending this winter. Its ability to pass on costs was among other reasons he quoted for the “neutral” rating on McDonald’s.
McDonald’s will take as much price as it can while still trying to promote the value message. But unlike in the U.S., it doesn’t have the same price positioning relative to other competitors in Europe. So, there’s a bit of risk on that end.
Tower expects the Street will downwardly revise its estimates after McDonald’s reports its Q3 results in the final week of October.
The stock is currently trading at a price-to-earnings multiple of 29.17 versus its previous five-year average of 27.30.
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