) to neutral from overweight.
Analyst John Ivankoe says after spending time in China, his initial conclusion on the opportunity for the company's China business did not substantially change to warrant a further increase in the implicit 35 times to 40 times multiple of the company's China business.
He believes China is not a margin improvement story. Lower than average new unit volumes are matched with higher labor costs and partially offset by supply chain leverage.
Ivankoe also notes competition for mid-level management is fierce and considerable additional general and administrative costs are needed to support future unit/market development.