McDonald’s shares slump as weight-loss drugs spur rare sell rating

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(Bloomberg) — McDonald’s Corp. shares slumped on Tuesday after Redburn Atlantic slapped the burger chain with 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 1.6% in premarket trading on the downgrade, a two-notch cut from Redburn’s previous buy rating. The stock has declined for six straight days, it’s longest losing streak in a year, after closing just below a record high in mid-May.

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 analyst Chris Luyckx 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.”

Luyckx also cut McDonald’s price target to a Street-low $260, implying a nearly 15% decline from where the stock closed on Monday. Other 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 analyst.

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,” Luyckx wrote.

Still, McDonald’s shares have risen 5% so far this year, but without improved value proposition and menu innovation, continued growth may not be sustainable, he added.