McDonald's shares drop after analyst slashes his sales estimates for the burger chain

  • RBC Capital Market reduces its sales and earnings estimates for McDonald's.
  • "We significantly lower our [same-store sales] expectations due to deteriorating industry conditions and a disappointing early sales impact from the $1, $2, $3 value menu," the firm says.
A customer enters a McDonald's restaurant in San Francisco.
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A customer enters a McDonald's restaurant in San Francisco.

McDonald's new value offering isn't off to a good start, according to one Wall Street firm.

RBC Capital Market reduced its sales and earnings estimates for McDonald's shares.

The company launched its $1, $2 and $3 menu in January.

"We significantly lower our US SSS [same-store sales] expectations due to deteriorating industry conditions and a disappointing early sales impact from the $1, $2, $3 value menu," analyst David Palmer wrote in a note to clients Friday.

Palmer lowered his price target for McDonald's shares to $170 from $190, representing 9 percent upside to Thursday's close.

He reduced his first-quarter U.S. same-store sales growth forecast to 1 percent from 3.5 percent and cut his 2018 earnings-per-share forecast to $7.43 from $7.60 versus the $7.59 Wall Street consensus.

Despite the deteriorating fundamentals, the analyst is bullish on McDonald's over the long term and reiterated his outperform rating for the company.

"While we are cautious on MCD in the near term, we believe the chain has ample opportunities to course correct and re-accelerate SSS growth in the coming quarters," he wrote.

McDonald's shares dropped 4.7 percent Friday after the report.

One Wall Street firm believes the stock's drop is a buying opportunity. Baird analyst David Tarantino said Friday's sell-off was "overdone."

"While we would not dispute that MCD has experienced a slowdown in the quarter-to-date period amid unfavorable weather and tougher comparisons, we believe the recent weakness in the stock over this issue has been excessive, and we would buy MCD ahead of an expected acceleration in Q2-Q4," he wrote.

— CNBC's Michael Bloom contributed to this story.