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Aug 12 (Reuters) - UBS downgraded McDonald’s Corp (MCD.N) 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)