McDonald's (MCD 0.17%) is well positioned to gain market share, according to UBS analyst Dennis Geiger. The fast food chain faces tough economic environments in certain international markets as well as weakening spending from lower-income consumers in the U.S. However, Geiger still sees McDonald's as one of the best-positioned restaurant chains to ride out the storm.
UBS maintained its buy rating on McDonald's stock on Friday while slightly lowering its price target to $335 to reflect these challenges. The new price target still suggests an upside of about 25% over the next 12 months or so.
Price hikes are starting to cause problems
McDonald's CFO Ian Borden disclosed last month that lower-income Americans are beginning to adjust their behavior in response to rising prices. More people are choosing to eat at home, forgoing McDonald's despite the chain's focus on appealing to cost-conscious consumers.
While UBS's Geiger doesn't deny this trend, he still expects McDonald's sales trajectory to improve as the year goes on. Geiger cites strong value scores for McDonald's in a recent Quick Service Restaurant Survey performed by UBS.
Slowing sales growth
McDonald's grew comparable sales in 2023, but growth slowed sharply from 2022. In the United States, comparable sales growth of 4.3% last year was down from growth of 10.3% in 2022. In international markets where the company doesn't operate restaurants itself, comparable sales growth was an anemic 0.7%.
It stands to reason that McDonald's will see even slower growth in 2024 as it grapples with issues both in the U.S. and abroad.
Is McDonald's stock a buy?
McDonald's can thrive in most economic environments thanks to its focus on value, but the stock has been steadily rising for years, pushing up the valuation to lofty levels.
McDonald's stock trades for 24 times trailing earnings. Given the company's sluggish growth, that valuation looks a bit rich. McDonald's will need to find a way to boost its growth rate this year to keep the stock on track.
