Market Overview

Goldman Sachs Downgrades McDonald's to Hold

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McDonald's (NYSE: MCD), the biggest fast food chain in the world, was downgraded to Hold on Wednesday by Goldman Sachs.

It is a surprising turn of events, as McDonald's has received hefty praise in recent weeks.

That big downgrade, along with a price target reduction to $92 from $100 suggests a 5% upside to the closing price.

Goldman Sachs said that McDonald's shares have underperformed the market year-to-date, and that it sees better opportunities elsewhere in the restaurants sector. Goldman named Starbucks (NASDAQ: SBUX) and Chipotle Mexican Grill (NYSE: CMG) as better alternatives.

The investment bank went on to say that McDonald's recent same store sales numbers prompted the decision. Goldman Sachs elaborated by saying that, among other things, McDonald's shares are trading at a relative premium to the S&P 500 - even after the recent sell-off and despite lowered forward growth prospects.

Perhaps the most surprising statement is that McDonald's is not currently outgrowing its key competitors. "One of the primary tenets of our previously bullish stance on MCD shares was an expectation of continued US market share gains from ongoing remodels and a share of voice advantage. However, this no longer appears to be the case. MCD's SSS in the current quarter have decelerated back to the 2%-3% range."

Meanwhile, Burger King, Wendy's (NASDAQ: WEN), and Yum! Brands' (NYSE: YUM) Kentucky Fried Chicken and Taco Bell have all seen accelerated rates of growth.

Despite the downgrade, McDonald's traded up about 1% on Wednesday.

Follow me @BCallwood.

Latest Ratings for MCD

Nov 2015BarclaysMaintainsOverweight
Nov 2015Credit SuisseMaintainsOutperform
Oct 2015Piper JaffrayUpgradesNeutralOverweight

View More Analyst Ratings for MCD
View the Latest Analyst Ratings

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