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Analyst cuts McD stock expectations

OAK BROOK Ill. Even the best restaurant companies can’t seem to catch a break in today’s economy.

Morgan Stanley securities analyst John Glass downgraded McDonald’s Corp. stock on Thursday, saying the company has a limited future upside beyond its recent highs. Other quick-service stocks with more potential include Yum! Brands Inc. and Wendy’s/Arby’s Group Inc., Glass noted.

“[McDonald’s] still has much going for it,” he said,including best-in-class sales and a nascent beverage strategy. Our downgrade is mostly a function of finding greater upside elsewhere É we also see higher risk of disappointment if things start to go wrong given McDonald’s long winning streak.”

Oak Brook-based McDonald’s, the nation's largest burger brand, has for nearly two years surpassed its peers in quick service and was one of just three publicly traded restaurant companies that saw its stock price rise in 2008. The other two were Panera Bread Co. and Buffalo Wild Wings Inc. So far this year, McDonald’s is off of its peak, down nearly 13 percent since January. The stock price was adjusted for a 50-cents-per-share dividend in June.

Glass said in his report that McDonald’s may have limited opportunity to further expand margins and holds an increased risk of a same-store sales slowdown.

“[McDonald’s] run of outperformance may be ending as a multi-year restructuring comes to an end for both the P&L and the balance sheet,” Glass noted.

McDonald’s stock price fell 1.45 percent Thursday to close at $55.59. It has traded between $67.00 per share and $45.79 per share during the past 52 weeks. Last week, the company reported an 8-percent drop in second-quarter profit as the strong U.S. dollar hurt results.

Contact Sarah E. Lockyer at [email protected].

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