McDonald’s shares slip as GLP-1 risks spur rare sell rating

McDonald’s Corp shares slipped on Tuesday after Redburn Atlantic gave the burger chain its sole sell rating, saying shifting consumer patterns due to weight-loss drugs and inflation are cause for concern.

Shares of McDonald’s fell as much as 1.8% to a March low on the downgrade, a two-notch cut from Redburn’s previous buy rating. Redburn held a buy rating on the stock since initiating coverage in 2023.

As more Americans turn to GLP-1 drugs like Ozempic to lose weight, McDonald’s could see as much as a $428 million annual impact to revenue, representing about 1% of system sales, Redburn Atlantic analysts Chris Luyckx and Edward Lewis wrote. “A 1% drag today could easily build to 10% or more over time, particularly for brands skewed toward lower-income consumers or group occasions.”

The analysts also cut the price target on McDonald’s to a Street-low $260, implying a more than 13% decline from where the stock closed on Tuesday. Shares have dropped for seven straight days, their longest losing streak in nearly 12 years, after closing just below a record high in mid-May.

Redburn’s lowered recommendation was just the latest downgrade for the fast-food giant, which was recently knocked down to hold-equivalent ratings at Morgan Stanley, Loop Capital and Erste Group. Analysts remain largely split on the stock, with 22 buy-equivalent ratings, 18 hold-equivalent ratings and an average price target of $332, according to data compiled by Bloomberg.

McDonald’s US same-stores sales fell 3.6% in the first-quarter of this year, marking the largest decline since 2020 when people were stuck at home during the pandemic. Fast-food restaurants like McDonald’s have also seen a decline in traffic in 40 of the past 43 months, according to the analysts.

In addition to the McDonald’s call, Redburn also launched coverage of Domino’s Pizza Inc. with a sell rating, while starting Chipotle Mexican Grill Inc. as a new neutral. YUM! Brands, which owns popular brands KFC, Taco Bell and Pizza Hut, was raised to buy from neutral given the stock’s “reasonable” valuation.

Despite the slump, McDonald’s has increased its average transaction amount through pricing, but lower-income consumers are now opting to eat more at home as the price difference between home and restaurant food increases, according to the report.

“While the brand has historically benefited from consumer trade-down during periods of pressure, recent years of outsized menu pricing have created value-perception challenges, contributing to persistent traffic softness,” the analysts wrote.

Still, McDonald’s shares have risen 3.6% so far this year, but without improved value proposition and menu innovation, continued growth may not be sustainable, the analysts added.

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