© Reuters. Citi Sees ‘Increasingly Less Favorable’ Setup in McDonald’s, Opens Negative Catalyst Watch
By Senad Karaahmetovic
A Citi analyst has weighed in cautiously on McDonald’s (NYSE:) as he believes the risk-reward is less positive now amid growing macro challenges in Europe.
FX and macro headwinds are “looming over EPS estimates” heading into the Q3 results and winter, the analyst warned clients. As a result, the analyst adjusted estimates and cut the price target to $246 from $275.
Moreover, the analyst warned investors that McDonald’s valuation remains very high, which leaves “little room for shares to absorb negative estimate revisions.”
“While we don’t question the strength/macro resiliency of the US business, US SSS would need to beat (already strong) expectations by a MSD percentage to offset marking to market for FX and even a LSD decline in the Europe SSS outlook,” the analyst wrote in a research note.
The analyst also opened a 90-day negative catalyst watch for MCD shares.
McDonald’s shares are modestly down in pre-open Tuesday after printing a 3-month low yesterday.