McDonald’s could soon start reflecting some of the broader pressures impacting the fast food sector, according to Morgan Stanley. The firm downgraded McDonald’s to equal weight from overweight on Monday and trimmed its price target to $324 per share from $329. Morgan Stanley’s new forecast implies about 5% upside from Friday’s close. “MCD is a top quality business but hasn’t been, and probably will not be, insulated from some structural pressures on fast food,” analyst Brian Harbour said. The analyst listed the impact of economic policy uncertainty on lower income consumers as well as shifts in health and wellness as headwinds facing the fast food sector. McDonald’s stock has outperformed its peers, the analyst said, but could soon slow down. “YTD, the stock is up 6% and has behaved defensively, 5% off all time highs despite fundamental headwinds for over a year,” Harbour said. “Simply, we see more balanced risk/reward skew today, weighing MCD’s leadership position in the [quick service restaurant] segment against what we think are some structural headwinds that could continue.” “At current levels, valuation is healthy in the context of history, with perhaps a greater chance of de-rating possible if not everything goes as planned,” the analyst added. McDonald’s shares fell slightly following the downgrade. Most analysts covering the stock are bullish despite Harbour’s rating change. Of the 38 who cover McDonald’s, 22 have a buy or strong buy rating, per LSEG. The remaining 16 rate the stock as a hold.
