03:29 PM EDT, 07/11/2024 (MT Newswires) -- McDonald's (MCD) US same-store sales likely turned negative in the second quarter amid weak demand, with trend headwinds seen persisting in the near term, Morgan Stanley said Thursday.

The fast-food heavyweight is scheduled to report second-quarter results July 29. Morgan Stanley expects US comparable sales to fall 0.5%, compared with its previous expectations of a 1% gain and Wall Street's outlook for a 0.6% increase. The brokerage trimmed its earnings projection to $3.02 a share from $3.11, versus the Street's $3.09 view.

Morgan Stanley said a potential miss is "well understood" at this point as there is some risk and debate around business trends in the second half of the year. "Incremental views have been negative, with pessimism on the company's ability to reassert a value advantage," the brokerage said in a note to clients.

The firm cut its price target on the McDonald's stock to $300 from $312, with an overweight rating. The company's shares were up 1.6% in Thursday late-afternoon trade, but are down 14% so far this year.

"The problem in the broader sector right now, carrying over to stock performance, is that despite a lot being thrown at consumers, it doesn't seem to be catalyzing demand that has been in a rut, at least based on data outsiders can observe," Morgan Stanley wrote.

McDonald's USA launched a $5 meal deal last month, though it doesn't seem to have had much impact so far, according to the note. "A $5 value meal is also not a Grimace shake or Travis Scott meal, in our view, meant to drive buzz and a short-term boost to (comparable sales), but should be part of a permanent value strategy to cater to a key customer cohort that has pulled back."

Morgan Stanley said it's possible for McDonald's to re-establish value, though that's not likely going to happen "overnight." Franchisees have an option to extend the deal, a move that Morgan Stanley said potentially marks the start of a revision of the company's value strategy, with likely "some adjustment" over time.

The brokerage cut its third-quarter global comparable sales growth forecast to 2% from 2.8%, versus a 2.1% gain modeled by the Street. Morgan Stanley reduced its full-year EPS outlook to $11.92 from $12.20, lagging the Street's $12.16 view, according to the note.

"On unit growth, we assume below 4% for the year and are a bit below Street given the Middle East and China are key growth drivers but might fall short of expectations this year," the brokerage said.

Price: 254.69, Change: +4.20, Percent Change: +1.68