AP News

Analysts keep positive ratings on McDonald's


Analysts on Monday lowered estimates for McDonald's as it faces weaker global demand, but most said the chain is a solid investment for the long-term and kept "Buy" ratings on the stock.

On Friday, the world's largest hamburger chain said tough competition in the U.S. and the weakening economy abroad hurt its third-quarter results, sending net income down nearly 4 percent. McDonald's said it will step up advertising around its dollar menu, continue to renovate stores, bring back its popular McRib sandwich nationally and introduce new menu items like a cheddar bacon onion sandwich in response.

Analysts said they expect challenges to persist throughout the next several quarters, but said longer term the chain will likely remain dominant in the fast food industry.

"We maintain our Positive rating as we believe earnings per share growth will re-accelerate into the low double-digits over the next six months and patient investors will be rewarded," said Susquehanna Financial Group analyst Rachael Rothman. "McDonald's global strategy of emphasizing value to drive sales takes time to bear fruit, but we believe it will be successful."

Raymond James analyst Bryan Elliott said the stock is likely also protected from declines due to its dividend yield — the ratio of how much a company pays out in dividends relative to its share price. He shaved his 2012 and 2013 net income estimates, but kept his $95 price target on the stock.

"We are confidently reiterating our 'Outperform' rating as we believe the 3.5 percent dividend yield is very safe and should prevent a material stock price decline even assuming a global recession," Elliott wrote.

Citi Investment Research analyst Gregory Badishkanian was less positive, pointing out that the increased focus on value will pressure profit margins, since the company makes less profit on the cheaper dollar menu compared with other items.

He kept his "Neutral" rating on the stock, lowered his net income estimates for 2012 through 2014 and cut his price target by $1 to $92.

McDonald's shares rose 3 cents to $88.75 in midday trading.


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