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Buy the dip in McDonald's shares because sales will rebound later in the year, Credit Suisse says

Key Points
  • Credit Suisse reiterates its outperform rating for McDonald's shares, saying any short-term weakness in the company's sales will be temporary.
  • "We believe the business is in a much better place than it was a few years ago, so the current correction seems overly punitive if it's due to short-term sales concerns," the firm's analyst writes.
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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The big sell-off in McDonald's shares this year is a buying opportunity, according to one Wall Street firm.

Credit Suisse reiterated its outperform rating for McDonald's shares, saying any short-term weakness in the company's sales will be temporary.

The restaurant chain's stock is down 14 percent this year through Friday due to investor concerns over its first-quarter U.S. sales. The company January.

"The last time MCD traded at these valuation levels was in ~late 2016 as investors feared a slowdown in US SSS [same-store sales]," analyst Jason West wrote in a note to clients Monday. "We believe the business is in a much better place than it was a few years ago, so the current correction seems overly punitive if it's due to short-term sales concerns."

West reaffirmed his $191 price target for McDonald's shares, representing 29 percent upside to Friday's close.

The analyst noted each 1 percentage point change in U.S. same-store sales impacts McDonald's earnings per share by only 6 cents per year. He said fast-food industry sales are "volatile" after the holiday season especially due to increased promotions.

"We are hesitant to read too much from 1Q trends," he wrote. "We remain optimistic that MCD can deliver solid SSS this year given the drivers noted above, along with some macro help (rising employment, incomes, and consumer confidence). New menu platforms can also take time to gain traction, as was the case with the original Dollar Menu launch in 2012."

McDonald's shares rose 1.9 percent Monday after the report.

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