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McDonald’s price target cut by RBC Capital after “disappointing” start for new $1-$2-$3 value menu

Last updated: 09:57 02 Mar 2018 EST, First published: 04:57 02 Mar 2018 EST

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Analyst David Palmer reckons shares are worth US$170, which is still above where they are currently

McDonald’s Corporation (NYSE:MCD) investors were left with a sour taste in their mouths after analysts at RBC Capital slashed their price target for the fast food chain after a “disappointing” start for its new $1-$2-$3 value menu.

As a result of the slow start and “deteriorating industry conditions”, RBC lowered its US same-store sales growth forecast for the first quarter of 2018 to 1% from 3.5%. The average Wall Street estimate is for growth of 3.8%.

“Our sense is that the $1 $2 $3 platform stole attention from local marketing, particularly at breakfast, which likely slowed as a consequence,” said David Palmer in  a research note.

“In addition, we believe $1 $2 $3 menu's positioning as a variety play protected franchisee profitability but lacked the 'hero' item necessary to resonate with value-conscious consumers.”

Palmer added he was cautious in the near-term, but can see opportunities for growth in the coming quarters.

The analyst chopped his price target to US$170 from US$190, although he kept his ‘outperform’ rating in place.

Shares in the fast food giant fell 3.9% to US%149.74 in early trading on Friday.

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