McDonald's, Papa John's downgraded on geopolitical headwinds
Fast-food chains McDonald's (MCD) and Papa John's (PZZA) were both downgraded to "Perform" ratings by Oppenheimer analysts. This has been Papa John's second downgrade this week, the first coming from Stifel analysts.
Yahoo Finance's Brooke DiPalma explains the geopolitical pressures coming out of the Middle East weighing on these restaurants, including McDonald's own global expansion plans and Starbucks (SBUX) CEO Laxman Narasimhan's concerns about misinformation around global events.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
- Shares in McDonald's and Papa John's have taken a tumble today on low expectations on the year from analysts and warnings that the conflict in the Middle East is affecting sales and brand perception. Oppenheimer has downgraded both of the big restaurant chains citing same store sales as the main driver. Yahoo Finance's Brooke DiPalma is here with more. Brooke.
BROOKE DIPALMA: That's right. Quite a different story from 2023. McDonald's was actually in Oppenheimer's top ideas of 2023. Now, Oppenheimer downgrading shares of McDonald's from outperform to perform. The firm anticipates a tougher setup for same store sales growth in 2024, particularly here in the US where that 10% of pricing is already baked in to 2023, full year same store sales growth.
Oppenheimer also expects negative traffic among low income consumers, and we did hear in the latest quarterly earnings results that the company is seeing pressure among low income customers, particularly those that make 45,000 and under. Oppenheimer also citing expansion plans that are expected to reach 50,000 units by 2027. Well, that's no longer a stock catalyst which Wall Street has been largely weighing on.
Shares McDonald's down roughly 1% today and shares of Papa John with a downgraded shares Papa John's to perform. They cited tough environment for Papa John's to unlock same store sales growth as well in 2024. They also cited concerns to earnings growth based upon those 118 UK stores that they purchased from franchisees and converted to company owned stores.
They're also citing international growth could be pressured by geopolitical concerns, which Papa John's CEO did say to Yahoo Finance earlier around there late last year, among other factors that could weigh on expansion. They did end the day down 4% and shares of Papa John's are down 9.6% so far this year.
- Yeah. So give us a little more detail on that geopolitical piece that you just mentioned here. What presence do these companies have in the mid East, for example, where there is still a war going on, and what effect could that have?
BROOKE DIPALMA: Yeah. Well to jump off, Papa John's CEO once again did say that there are development concerns in the Middle East based upon the war that is currently happening there. In addition to that, McDonald's CEO Chris Kempczinski kicking off the year weighing in on these concerns in a post on LinkedIn. He also weighed on misinformation. In the letter, he said, quote, "Several markets in the Middle East and some outside the region are experiencing a meaningful business impact due to the war, and associated misinformation" that is affecting brands like McDonald's. He called it both disheartening and ill founded.
Now, in late 2023 in December, Starbucks CEO came out with a similar message in a memo to its employees. He said that they're concerned about the state that we live in. He also noted with conflicts in many parts that have unleashed violence and sparked protests he said it's largely influenced by similar messages, he said miss representation on social media and what they have stood for has ultimately led to vandalism in their stores.
And so it'll be interesting to watch how this all plays out. We'll hear from more executives as we make way towards earnings about how much of misinformation and the tensions in the Middle East weigh on development, as well as overall perception of the companies.
- Yeah, it's interesting. It's not something that you would necessarily think off the bat.
BROOKE DIPALMA: That executives would--
- And these types of companies would be affected by these issues you think oil and gas, you think of some others more.
BROOKE DIPALMA: Right.
- So that's a good flag. Thanks, Brooke. Appreciate it.
