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McDonald's downgraded because last year's sales success is not the 'norm'

Key Points
  • Stephens downgrades McDonald's to equal weight and cuts price target to $170 from $185.
  • The shares are up 24 percent over the last 12 months.
A Quarter Pounder hamburger is served at a McDonald's restaurant on March 30, 2017 in Effingham, Illinois. McDonald's announced today that it will start making the burger with fresh beef patties instead of the frozen beef that it currently uses.
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Investors shouldn't get used to McDonald's recent strong sales growth, according to Stephens Inc., which downgraded the stock to equal weight from overweight.

"Mid-single-digit comparable growth of recent quarters (especially in U.S.) was a result of successful initiatives coming together at once and should not be considered the norm," analyst Will Slabaugh wrote Monday.

While consensus sees 2.9 percent same-store sales growth in 2018 – a key industry metric – Slabaugh argued that modest 2 percent growth is more realistic. He also cut his price target on McDonald's to $170 from $185, implying 5 percent upside over the next 12 months.

Shares of McDonald's traded flat on the day following the report. The shares are up 24 percent over the last 12 months.

In its latest quarterly financial report, the restaurant chain reported global same-store sales growing at its fastest pace in six years, climbing 5.5. percent in the final quarter of 2017; U.S. sales growth jumped 4.5 percent, beating consensus estimates.

The company is expected to report first-quarter earnings on April 30. McDonald's did not immediately respond to CNBC's request for comment on this story.

The Stephens downgrade comes amid a slew of initiatives from McDonald's in its attempt to recapture lost customers. Some investors, however, worry that the company's addition of a new $1 $2 $3 Dollar Menu may prompt more existing customers to trade down to cheaper menu options.

Company executives have already forecast "choppy" results for the current year and have declined to provide investors and analysts with earnings and sales estimates this year. Last year, the company said it wouldn't issue earnings forecasts for two years, saying that an uptick in refranchising across the globe would make further comparisons confusing.

The company's also said it has brought fresh beef Quarter Pounder patties to about 3,500 domestic restaurants so far and plans to reach 14,000 U.S. locations by early May in a larger effort to improve the quality of its food.

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