McDonald's was given an initial rating of «Sell». What stocks do analysts advise in return?

The first on Wall Street team of analysts recommended investors to sell shares of McDonald's restaurant chain. Analysts doubted the prospects of further growth of quotations, noting the impact of obesity drugs on the eating habits of consumers. At the same time, they upgraded the rating of McDonald's competitor - owner of KFC, which they consider more resistant to crises.

McDonald's was given its first «Sell» rating by Redburn Atlantic analysts Chris Luyckx and Edward Lewis. They had previously recommended buying the stock for two years, noted Bloomberg. Redburn analysts also set the lowest target for McDonald's on Wall Street at $260. That's about 15% below McDonald's share price at the close of recent trading. 

Other analysts' opinions on the fast food chain are divided, with 17 out of 38 recommending buying the stock and 20 taking a neutral stance, advising to hold it for now.

The reason for the rating change by Redburn Atlantic was a decline in McDonald's sales. The company could face a $428 million decline in annual revenue, or about 1% of the entire chain's sales, as more Americans begin using weight-loss drugs (GLP-1 class) such as Ozempic, Redburn Atlantic analysts wrote.

«A 1% decline today could easily translate to 10% or more over time - especially for brands targeting low-income consumers or meal-sharing,» they said in a note cited by Bloomberg. According to the analysts, low-income consumers cut spending on fast food by 14% - double that of high-income consumers. 

«The conclusion is clear: McDonald's ability to repeat its success in a recession is questionable. If the brand fails to reassert its leadership in value for money - whether through clearer value propositions or innovation in menus and formats - its 'protective' status in the eyes of investors could be lost,» the analysts wrote (quote via CNBC).

Simultaneously with the downgrade of McDonald's, Redburn analysts upgraded Yum! Brands, which owns KFC, Pizza Hut and Taco Bell restaurants, from «neutral» to «buy». They raised their target on them from $145 to $177. 

The decision reflects analysts' optimism about the company's growth prospects and strong financial position, writes Investing.com. The analyst firm highlights Yum's strong international presence and Taco Bell's exceptional results as key factors in the company's success, the publication writes. The analysts estimate that the company is more resilient to crises due to its extensive international network.

«Our more optimistic than Wall Street consensus forecasts for Yum! Brands reflect better [fast food] category dynamics and a more restrained approach to price increases [than competitors],» Redburn explained.

The Wall Street consensus price target is $160.4 per share of Yum! Brands stock. A total of 30 analysts are tracking the company's securities tracked, with 22 of them advising to hold the stock and only five advising to buy. There are no sell recommendations.

McDonald's stock downgraded for the third time in less than a week, with Morgan Stanley downgrading the stock from «above market» to «market perform» on June 9 and Loop Capital moving the securities from «buy» to «hold» on June 6.

Morgan Stanley explained that they see problems not with McDonald's, but with the overall market. «McDonald's is a top-quality business, but it has not been and likely will not be immune to the structural challenges facing the fast food market,» the investment bank said in a note cited by CNBC. Among the factors putting pressure on the industry, Morgan Stanley cited uncertainty in economic policy, particularly affecting lower-income consumers, as well as a growing interest in healthy lifestyles and nutrition.

Loop Capital cited negative feedback from McDonald's customers about McCrispy chicken strips, writes Barron's. According to analysts, despite «great taste,» the strips look less appetizing: they have less breading and are shallower than McDonald's previous chicken nuggets or tenders. This caused disappointment among some consumers and questioned the effectiveness of the product line in its current form.

Meanwhile, Goldman Sachs on June 5 advised buying shares of Yum! Brands, as the restaurant chain is growing more aggressively than competitors. Like Redburn, the investment bank cites Yum's strong international network and plans to ramp up KFC and Taco Bell in key markets.