McDonald’s stock price is experiencing a significant decline, shedding weight in the market. Over the past six months, shares of this fast-food giant have seen a dramatic 13.5% drop, trading at $250.45 per share. This decline sharply contrasts with the S&P 500, which managed to gain 5% during the same period, according to Yahoo Finance data. Even the Dow Jones Industrial Average, which has had McDonald’s as a member since 1985, showed a slight dip in that time frame.
Zooming in on the last three months reveals that the selling pressure on McDonald’s (MCD) has been most pronounced, with shares plummeting by 15.2%. On October 12, the stock hit a 52-week low at $246.19.
Matt Maley, the chief market strategist at Miller Tabak, pointed out that to find a time when McDonald’s was more oversold on its RSI (Relative Strength Index) chart than it was in early October, you have to go back more than 20 years, all the way to the 2002 lows.
This downward trend is surprising given that McDonald’s is usually considered a safe-haven stock that investors turn to when the world becomes more volatile, such as in times of fresh Middle East tensions.
However, Wall Street seems to be fixated on the potential long-term impact of weight loss drugs, formally known as GLP-1 drugs, on companies that sell products with high sugar, fat, and processed ingredients. This has led to a sell-off not only in McDonald’s but also in other companies, including soda giants Coca-Cola (KO) and PepsiCo (PEP), as well as Conagra Brands (CAG), the makers of Slim Jim.
The concerns regarding the impact of weight loss drugs on McDonald’s have undoubtedly played a part in the stock’s decline. In May 2023, data from IMS/IQVIA indicated that approximately 10.6 million doses of obesity drugs were officially prescribed by Novo Nordisk (NVO) and Eli Lilly (LLY) in the US. When considering this over a 4.5 week period, it suggests that the user base was around 2.4 million adults in May.
Matt Maley summarized this impact by stating, “The concerns surrounding the impact that the weight loss drugs will have on [McDonald’s] has caused its stock to drop.”
Despite the challenging situation for McDonald’s shareholders, analysts have been cautious about issuing rating downgrades. Citi analyst Jon Tower commented, “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.”
Analysts like Tower highlight several positive aspects of McDonald’s business model that may be overshadowed by the weight loss drug concerns. These include the predominantly franchised business model, which typically leads to higher profit margins. Management’s efforts to accelerate the opening of new restaurants and the company’s commitment to digital initiatives for drive-through orders and mobile ordering are also seen as promising.
Jon Tower added, “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.”
