Here's why analysts may be 'wrong' in downgrading McDonald's stock

McDonald’s Corp (NYSE: MCD) is inching further down this morning after Redburn Atlantic double downgraded the fast food chain to “sell”, saying the value proposition is no longer what it used to be.

Redburn’s downgrade of McDonald’s is notable as it marks the third such rating cut in less than a week, underscoring a sharp erosion in Wall Street’s confidence in the stock following its underwhelming first-quarter earnings.

Despite this wave of bearish sentiment, former hedge fund manager Jim Cramer remains bullish.

He dismissed the analyst downgrades, stating that he believes “analysts are going to be wrong” on McDonald’s.

The stock is currently down over 6% from its year-to-date high reached on May 19, reflecting investor caution amid mixed signals on consumer demand.

Why is Cramer bullish on McDonald’s stock?

McDonald’s has come under fire in recent weeks, mostly because its relaunch of “McCrispy Strips” received an underwhelming response from customers, leading many to believe that the fast food giant is losing its mojo, at least in the US.

However, Cramer has immense confidence in the leadership of Chris Kempczinski, whom he believes the market is underrating at present.

“He’s a great CEO. Chris will kill [chicken strips] if they don’t sell. I think MCD stock will shrug off every one of these downgrades, and you have to buy the stock here.”

According to the famed investor, McDonald’s has a history of getting rid of everything that doesn’t work – from underperforming menu items to underperforming executives – and that, he argued, is a recipe for long-term success.   

MCD remains committed to budget-conscious consumers

Investors should note that even with recent price hikes, McDonald’s generally remains one of the most affordable options for eating out.

In fact, the NYSE-listed firm continues to reevaluate and promote its value offerings.

The recent launch of the “McValue” platform, including promotions like the “$5 Meal Deal” and “Buy One, Add One for $1”, demonstrates the firm’s commitment to attracting budget-conscious consumers.

Additionally, MCD has an unparalleled global scale and a robust supply chain that allows it to negotiate favourable prices for ingredients and maintain cost efficiencies that smaller competitors simply can’t match.

A dividend yield of 2.35% makes the food stock even more exciting to own at current levels.  

Should you buy MCD shares on recent weakness?

Finally, McDonald’s continues to benefit from a diversified menu and a broad international footprint, which could help mitigate current headwinds in upcoming quarters.

The company is actively pivoting to address shifting consumer behavior, with plans to emphasize value meals aimed at more price-sensitive customers.

The expected reintroduction of its popular “snack wraps” next month is also seen as a strategic move to strengthen its appeal in a potentially weaker economic environment.

It's worth noting that the latest bearish calls diverge from the broader analyst consensus.

According to The Wall Street Journal, McDonald’s still holds an “overweight” consensus rating, with a mean price target of $333, implying an upside of about 11% from current levels.