McDonald’s Corporation (MCD), a stalwart in the fast-food industry, has experienced a significant downturn in its stock prices. Over the past half-year, shares of the industry giant plummeted by a staggering 13.5%, settling at $250.45, a performance notably weaker than the S&P 500’s 5% surge, as reported by Yahoo Finance data. In contrast, the Dow Jones Industrial Average (^DJI), which has included McDonald’s since 1985, saw only a marginal dip during the same period.
The most acute decline in McDonald’s stock prices has been observed in the last three months, with shares plummeting by 15.2%. This recent slump culminated in a 52-week low of $246.19 on October 12.
Matt Maley, the chief market strategist at Miller Tabak, noted, “You have to go back more than 20 years … all the way back to the 2002 lows … to find a time when McDonald’s was more oversold on its RSI [Relative Strength Index] chart than it was at its early October lows,” in correspondence with Yahoo Finance.
This downturn in McDonald’s stock, typically regarded as a safe-haven investment, has puzzled many. Traditionally, it’s a blue-chip stock favored by investors during times of heightened market volatility, such as the current tensions in the Middle East.
The primary culprit behind this unprecedented decline appears to be Wall Street’s fixation on the potential long-term effects of weight loss drugs, particularly GLP-1 drugs like Ozempic, on companies dealing in products high in sugar, fat, and processed ingredients. This apprehension has reverberated through the stock market, affecting not only McDonald’s but also industry titans like Coca-Cola (KO), PepsiCo (PEP), and Conagra Brands (CAG), the parent company of Slim Jim.
Recent data from IMS/IQVIA reveals that in May 2023 alone, approximately 10.6 million doses of obesity drugs were officially prescribed in the US by Novo Nordisk (NVO) and Eli Lilly (LLY).
Breaking down this figure by the standard 4.5 weeks per month, it’s estimated that the user base consisted of roughly 2.4 million adults in May.
“The concerns surrounding the impact that the weight loss drugs will have on [McDonald’s] has caused its stock to drop,” asserts Maley.
Despite the punishing effects on bullish investors, the market has been reluctant to deliver rating downgrades. Citi analyst Jon Tower insists, “The recent weakness of the MCD stock screams unfairness. After all, many investors bought the stock for its resilience under any macro scenarios and protection against market volatility,” in a note to clients.
Analysts like Tower underline several advantageous elements within the McDonald’s business model that might be overshadowed by the weight loss drug focus. These include a predominantly franchised model, conducive to elevated profit margins, active efforts by management to expedite new restaurant openings, and a thrust towards digitalization in both drive-through orders and mobile transactions.
Tower further adds, “While the GLP-1 risk is hard to measure, the current multiple may not fully reflect McDonald’s wider appeal led by greater digital, delivery and drive through investments coupled with more craveable options and improved marketing execution.”
The question remains: will investors perceive discounted McDonald’s stock as enticing before the year’s end? The verdict is yet to be reached.
Source: Yahoo Finance
