Wells Fargo cuts McDonald’s target on franchisee deal concerns
Wells Fargo has reduced its price target for McDonald’s Corporation from $300 to $270, while keeping an Overweight rating on the stock. The adjustment comes amid concerns about McDonald’s pricing and value strategy, following its Accelerating the Arches Day presentation. Analyst Zachary Fadem pointed out that the company’s messaging on value still falls short, especially as consumers face budget constraints and competition grows. Despite the downward revisions, InvestingPro data indicates that McDonald’s may be undervalued at current levels, with the stock’s Relative Strength Index (RSI) suggesting it is in oversold territory.
McDonald’s is committing $8.5 billion over the next decade to its NEXT initiative, which focuses on technology, infrastructure, and menu improvements. Wells Fargo estimates that the company will need a 13% to 18% cumulative average unit volume lift to justify this investment. The firm has also trimmed its earnings per share estimates for 2026 through 2028 by 0.4%, 3%, and 4%, respectively. Additionally, Wells Fargo expects NEXT-related challenges to peak in fiscal 2030, with a 40 basis point hit to the take rate and a 20% increase in depreciation and amortization.
The analyst highlighted that franchisees appear to benefit more from the deal, describing it as a win for operators but an overhang for shareholders. McDonald’s stock has dropped 24% year-to-date, contrasting with a 13% gain in the broader market. In related news, McDonald’s sold a store in Hong Kong’s Tsuen Wan district for $15.3 million, a significant increase from its 1987 purchase price of HK$8 million.
Other analyst firms have also adjusted their outlooks on McDonald’s stock. Morgan Stanley lowered its price target to $297, citing investment costs linked to the NEXT strategy. Bernstein SocGen Group maintained a Market Perform rating with a $295 price target, noting potential pressure on near-term earnings due to the ambitious investment plans. Baird reduced its price target to $250, emphasizing consumer headwinds and uncertainties surrounding the NEXT strategy. BTIG cut its price target to $295 but kept a Buy rating, focusing on sales pressures and investment costs.