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Inflation in Europe Could Impact McDonald's, Citi SaysInflation in Europe Could Impact McDonald's, Citi Says Barron's (Online); New York Inflation in Europe could shape up to be a key problem for McDonald's heading into the winter season. That's why Citi lowered its price target for the stock and opened a 90-day negative catalyst watch. Analyst Jon Tower reiterated a Neutral rating for McDonald's (ticker: MCD) and trimmed his price target to $246 from $275 on Tuesday. The analyst also believes McDonald's could see a downward revision to earnings estimates in the next few weeks, which in turn will pressure the share price. European countries are currently battling with decades-high inflation ranging close to the double-digits, which many analysts predict will only get worse if energy prices skyrocket heading into the winter months. "We expect macro challenges will take a growing (and outsized vs the U.S.) bite out of European consumers' wallets as we move closer to and through winter," Tower wrote in a research note on Tuesday. But unlike in the U.S., European consumers aren't likely to flock to McDonald's when times get tough. In times of duress, European consumers haven't tended to shift their discretionary wallet toward restaurants, Tower wrote. In addition, the company recently benefited from a tourism boom in Europe that could ebb as reopening tendencies normalize. In addition, rising foreign exchange headwinds could take another bite from McDonald's European profits, he added. The dollar reached 20-year highs on Monday, while rival currencies—including the euro— have failed to keep up . Wall Street has yet to factor in the full extent of the foreign exchange headwinds McDonald's will be facing in the latter half of the year, Tower said. The analyst believes that could change following McDonald's third-quarter earnings report, expected toward the end of October. "We believe negative earnings revisions coupled with a valuation near historical highs (on absolute and relative) will cap upside performance and pressure shares despite a still-robust U.S. business," he wrote. Earlier this summer, Deutsche Bank downgraded the stock to Hold from Buy, citing concerns over the company's high valuation. Analyst Brian Mullan slightly lowered his price target and earnings estimates for the year, but simultaneously praised the company's recent strong performance amid a challenging consumer backdrop. McDonald's shares dropped 1.4% on Tuesday. The stock has lost 10% this year, outperforming the S&P 500's 23% decline. |
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