McDonald's was just hit with a double downgrade — from buy to sell — by Redburn Atlantic, which cited softening traffic trends tied partly to weight-loss drugs from Eli Lilly and Novo Nordisk, which may become a much stiffer headwind over time. MCD was the worst premarket performer among the 30 Dow Jones Industrial Average components early Tuesday.
McDonald's made a stand at its 200-day moving average on Monday, after a Morgan Stanley downgrade, but is at risk of falling through that long-term support level in Tuesday stock market action.
MCD Gets Third Downgrade In Three Days
The Redburn Atlantic downgrade of MCD is the third in as many sessions. Loop Capital cut its McDonald's rating to hold on Friday, highlighting a poor reception of its McCrispy chicken strips that bodes poorly for a same-store sales recovery. Overall sales slipped 3% in Q1 as earnings per share dipped 1%.
On Monday, Morgan Stanley reduced the fast-food giant to equal weight, noting that eroding pricing power suggests it may not be a great defensive play as low-income customers face a financial squeeze.
Redburn Atlantic analyst Chris Luyckx slashed his MCD price target to 260 from 319. By comparison, Loop Capital lowered its target to 315 from 346 and Morgan Stanley to 324 from 329.
Weight-Loss Drugs Pose Risk
Luyckx wrote that GLP-1 weight-loss drugs pose an underappreciated threat to McDonald's, saying that while the current drag on sales may be small, it "could easily build to 10% or more over time."
On the PepsiCo earnings call on April 24, CEO Ramon Laguarta, asked about an oral version of the weight-loss drug coming to market, said that GLP-1 consumers are "keeping our brands in their repertoire, probably in a smaller portion." He added, "that's the way they are actually eating across most of their choices."
Laguarta said that the weight-loss drugs also are "driving more consumption on protein space, on fiber, on hydration."
Novo Nordisk sells Ozempic for diabetes and Wegovy for weight loss, both with the same active ingredient, semaglutide, that mimics GLP-1. Eli Lilly sells Mounjaro for diabetes and Zepbound for obesity. Both contain tirzepatide, which mimics GLP-1 and GIP.
These drugs are injectable, but the big pharma giants and others are working on oral drugs that could significantly boost demand.
MCD Stock
McDonald's was off 1.3% to 300.82 in early Tuesday stock market action, signaling another 200-day line test. On Monday, while the Dow Jones finished nearly unchanged, MCD fell 0.8% to 304.78, briefly undercutting 300 as well as its 200-day line.
MCD finished 6.6% off its 52-week high on Monday.
