CLSA On McDonald's: Expect Limited Growth In China Over Next 3 Years

CLSA's Jeremy Scott reiterated McDonald's Corporation (NYSE: MCD)'s Underperform rating and $128 price target.

Scott was highly concerned with growth in China as the nation's economy deaccelerated. "The recent comp in McDonald's is likely to be muted going forward," said Scott. The June China Reality Research (CRR) study "measured ongoing deceleration in consumption of foreign fast food and a drop in favorability for McDonald's in both high-tier and low-tier cities" stated the analyst. Scot believed pullbacks on McDonald's expansionary campaigns in China and refranchising will result in "limited growth over the next three years."

‘Crowded and Tired'

McDonald's competition has also suffered recently.

"In higher-tier cities, where there has been a decade-long blitz of foreign fast-food chains playing catch-up with KFC (NYSE: YUM), led in part by McDonald's, consumers are showing signs of category fatigue," said Scott. Although McDonald's has "fared better" than competition, the analyst thought an "overworked and overextended market will pressure comps in the near term."

McDonald's closed at $121.90.