McDonald’s Outlook Still Bright After Sales Miss: Analysts

Vehicles in two separate drive-up lanes place orders at a McDonald's drive-thru location in Rosemont, Illinois.
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Vehicles in two separate drive-up lanes place orders at a McDonald's drive-thru location in Rosemont, Illinois.

Fast-food giant McDonald’s is still an attractive bet, despite pockets of weakness in its global sales, two analysts said on Tuesday, underscoring how the stock remains a relatively attractive investment.

The proprietor of the Golden Arches saw stronger monthly sales in August, after reporting its worst monthly sales in nine years in the month prior. Still, McDonald’s sales fell short of analysts’ expectations.

Speaking to CNBC’s “Squawk on the Street,” Jim Yin, an equity analyst at S&P Capital IQ, said he was “relieved” by the rebound in sales.

“It shows that: one, overall sales globally sales need to continue to grow in the low single digits in a tough economy; and two, that McDonald’s [should] continue to maintain or slightly grow its market share,” Yin said. He maintains a 12-month price target of $104 on the stock, and rates it a “strong buy.”

McDonald’s can expect “near-term pressure on margins … but longer-term we like the company and think the company is very attractive,” Yin added.

In recent years, the world’s biggest hamburger chain has diversified its menu with more healthful and cheaper offerings. Still, some analysts attributed the restaurant chain’s recent struggles to weakness in the global economy and rising cultural concerns about obesity.

R.J. Hottovy, global director of equity research at Morningstar, cited intensified competition from rivals such as Wendy's and Burger King Worldwide as helping to pressure McDonald’s margins.

“What you’re seeing is more competition from some of its, you know, peers that have lagged the company in the past couple of years,” the analyst noted. “And you really are dealing with a choppy consumer spending environment.”

Hottovy said there was “excitement” building around McDonald’s new menu offerings that would help support the stock. However, he warned that rising food prices could take its toll on margins next year.

“We do have some caution based on more difficult comparisons that show up in the fourth quarter, as well as the threat of higher food costs that are going to pay out early next year,” he said.

—By’s Javier E. David

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Neither analyst cited in this story owned McDonald’s, though S&P Capital IQ did perform some paid services for the company.