Before the opening bell on Monday, RBC Capital cut estimates on McDonald’s (MCD). Here’s what the rating change means for investors.
Inside the Downgrade
The firm has lowered its price target on MCD from $115 to $110. This new price target suggests a 13% upside from the stock’s current price. According to the firm, MCD is seeing a negative start to its U.S. turnaround.
Analyst David Palmer commented: “We are lowering our EPS estimates to account for FX, increased labor costs, and slower US SSS momentum.”
“However, even with our lower EPS estimates, McDonald’s valuation metrics compare favorably to both restaurant and consumer staples peers.”
Lower Sales & Higher Labor Costs
McDonald’s recently announced that it will raise employee wages above minimum wage. The increase will add to expenses, while sales in the U.S. have been declining.
McDonald’s is up 3% YTD.
Mutual Funds to Watch
Investors interested in MCD may also consider a mutual fund as an alternative to owning the individual stock. The funds below currently hold the largest stakes in MCD.
| Symbol | Mutual Fund | Stake |
|---|---|---|
| VTSMX | Vanguard Total Stock Market Index | 1.76% |
| VFINX | Vanguard 500 Index | 1.13% |
| VDIGX | Vanguard Dividend Growth | 0.57% |
The Bottom Line
The funds listed above allow investors to gain exposure to MCD while remaining diversified. Investors interested in MCD may also be interested in Burger King (BKW) and Yum! Brands (YUM).