RESEARCH ALERT-UBS cuts McDonald's on valuation, shares fall

martedì 12 agosto 2008 17:34

 (Recasts; changes source, adds details, share movement)
 Aug 12 (Reuters) - UBS downgraded McDonald's Corp (MCD.N: Quotazione)
to "neutral" from "buy" on valuation as flattening restaurant
margins and shrinking currency gains weigh on profit growth at
the world's largest fast-food chain, sending its shares down as
much as 3 percent.
 The brokerage said that while the company was better
positioned than most in its industry to face the "big three
risks of consumer, currency and commodity inflation," most of
this upside was already built into the stock.
 "Currency has been a one to six percentage point annual
lift over the last five years" for the fast-food chain, and
this could turn into a drag in the next couple years, UBS
analyst David Palmer said.
 Palmer also expects slowing sales growth, partly driven by
global economic conditions, to weigh on McDonald's profit
growth. Slowing economic growth in Germany and Asia could be a
sign of broader slowdown, he said.
 The analyst also raised concerns about the slowing
fast-food industry trends in the United States in recent weeks,
adding that benefits of the tax rebate boost may be waning. He
said the company's sales trends could slow more materially in
the fourth quarter.
 However, he expects ongoing global same-store sales
momentum, share repurchase and dividend increases to help
support the stock from a significant sell-off.
 Palmer maintained his price target of $69.00 on the stock.
 Shares of the company fell to a low of $64.00, before
recouping some losses to trade down $1.00 at $64.95 Tuesday
morning on the New York Stock Exchange.
 (Reporting by Dhanya Skariachan in Bangalore; Editing by
Anthony Kurian)