Why McDonald's Corporation Might Pull Back in 2014

Does this analyst make a good case? Or is it just more noise from Wall Street?

Jan 8, 2014 at 10:09AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of McDonald's Corporation (NYSE:MCD) slipped 1% on Wednesday after Wells Fargo downgraded the fast-food giant from outperform to market perform.

So what: Along with the downgrade, analyst Jeff Farmer maintained his valuation range of $100 to $102, representing about 5% worth of downside to yesterday's close. While value investors might be attracted to the stock's sluggish action during the past several months, Farmer believes that top-line headwinds should continue to limit multiple expansion going forward.

Now what: Wells expects McDonald's ROIC to continue to slip in 2014. "McDonald's U.S. market share losses in three of the last four months through November have increasingly captured our attention," noted Wells. "MCD was more aggressive in 2013 with both new products and promoting value, but the company's recent U.S. market share losses suggest that the long-delayed raising of the competitive bar by [Wendy's] and [Burger King Worldwide] is creating a tangible top-line headwind for McDonald's, and one we expect to persist in 2014." With McDonald's shares currently boasting a 3%-plus dividend yield, however, those short-term concerns might be providing patient Fools with a solid long-term income opportunity.

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Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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