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Lack of appetite for the Dollar Menu sinks McDonald's shares

FILE - This Feb. 14, 2018, file photo shows a McDonald's restaurant in Ridgeland, Miss. McDonald’s shares are declining on signs that its value menu may be falling flat with customers. (AP Photo/Rogelio V. Solis, File)

NEW YORK (AP) -- Wall Street is losing its appetite for McDonald's, believing that there aren't many fans of its new Dollar Menu.

Shares tumbled almost 5 percent to new low for the year Friday.

Value menus have become the tool of choice at fast food companies to generate traffic. In January, McDonald's revived its popular Dollar Menu, with items priced at $1, $2 or $3.

But competition for mouths has never been more fierce. Rivals Taco Bell and Wendy's responded with their own value meals and they've won some converts.

On Friday, David Palmer of RBC Capital Markets lowered his expectations for the company because of the lack of excitement over the Dollar Menu, on top of a worsening picture for the entire industry.

McDonald's may have cannibalized its own sales with promotions for the Dollar Menu, pulling customers away from its popular breakfast foods, Palmer wrote. He also thinks the Dollar Menu doesn't have a "hero" item on it, something that will pull people into a McDonald's restaurant, rather than a Burger King or Taco Bell.

Palmer lowered his expectations for comparable-store sales by more than two-thirds, to 1 percent. Those sales, from restaurants that have been open for at least a year, are watched closely by industry analyst because they're a good barometer of the company's health.

There are reasons that McDonald's can rebound, Palmers said, for reasons that are both internal and external, including recent, sweeping tax changes that put a little more money into the pockets of consumers.

While Palmer cut McDonald's Corp. price target to $170 from $190, he remains optimistic that the hamburger chain has time to make changes and reaccelerate same-store sales in the coming quarters. He expects fiscal stimulus from tax reform, improving wage growth, low unemployment and food-at-home inflation to bring more people into McDonald's restaurants in the remaining quarters.

Shares of McDonald's Corp., based just outside of Chicago in Oak Brook, Illinois, dropped to close Friday at $149.27, levels not seen since last May.