Wall Street Takes A Bite Out Of McDonald's Quarter

McDonald's Corp MCD reported third-quarter results, which disappointed investors across multiple metrics. The stock fell about $10 per share Tuesday to close at $199.27.

Here is a summary of how some of the Street's top analysts reacted to the print.

Morgan Stanley: Key Takeaways

Morgan Stanley analyst John Glass laid out a few key takeaways from McDonald's report:

• U.S. sales comps of 4.8% marks a decrease from the second quarter but inline with recent trends. The company gained market share in burgers but may have lost share in chicken from growing competition.
• Nearly every international segment saw growth in guest counts while licensed markets saw strength in Japan, China, and Brazil.
• SG&A should move higher by 1% to 2% in constant currency versus 2018 due to tech spend and operating costs with recent acquisitions. Higher spend should carry over into next year and could limit earnings growth to 6% to 7% versus a prior estimate of 8% to 9%.

Glass maintains an Overweight rating, with the price target lowered from $220 to $214.

Related Link: MKM On McDonald's: The Future Is Now

KeyBanc: Digital And Traffic

McDonald's Experience Of The Future (EOTF) initiative likely contributed 50 to 100 basis points to same-store sales growth in the third quarter and a similar trend should play out in the fourth quarter, KeyBanc Capital Markets analyst Eric Gonzalez wrote in a note. The restaurant's focus on digitization is showing early signs of benefits, including its acquisition of Dynamic Yield which can help with add-on sales and already helped in reducing drive-thru waiting time by 20 seconds.

Meanwhile, the analyst said traffic declines in the third quarter were likely in the 2% to 2.5% range which is the largest decline (excluding Easter shift) in 2019 and 2018. Average ticket size improved, however, which helped contribute to rising franchisee cash flow.

Gonzalez maintains at Overweight, with the price target lowered from $235 to $225.

Stephens: 'Heck Of A Move'

McDonald's stock has had a "heck of a move" higher from below $90 per share when Steve Easterbrook was named CEO in early 2018, Stephens analyst Will Slabaugh said on CNBC. However, the report presents new concerns for investors as U.S. comps slowed from 5.7% last quarter to 4.8%.

In fact, the 5.7% growth in the second quarter was driven entirely by check size growth as total transactions were negative. The same trend of negative transactions continued in the third quarter which is a "big worry" for both investors and franchisees.

Nevertheless, Slabaugh thinks McDonald's remains better positioned over the longer-term compared to its peers given recent investments and investors may want to be buyers on the dip.