McDonald's Corporation

New York Stock Exchange
Back to all articles
Bullish +65

4 Reasons to Buy McDonald's Stock Like There's No Tomorrow

📉 McDonald's stock has stayed nearly flat while the S&P 500 advanced 24% over the past 12 months due to slowing comparable store sales and an E. coli outbreak.

🌪️ The recent slowdown is attributed to temporary headwinds including inflation, two major hurricanes, and geopolitical conflicts rather than structural business decline.

🍔 The company is launching new products like the Chicken Big Mac and extending its $5 meal deal to attract budget-conscious customers.

🇪🇺 International expansion includes a cheaper McSmart menu in Europe showing signs of improvement in France and Germany.

📱 McDonald's loyalty program reached 150 million active members at the end of 2023 with a target of 250 million by the end of 2027.

🤖 The company is automating locations to control labor costs while leveraging its franchise model for high-margin royalty profits.

💰 Consistent share buybacks have reduced the total share count by 25% over the past 10 years, supporting long-term earnings growth.

📈 Analysts expect revenue to grow at a compound annual rate of 4% and earnings per share to grow at 6% from 2023 to 2026.

👑 McDonald's has raised its dividend for 48 consecutive years and is on track to become a 'Dividend King' with two more hikes needed.

💵 The stock currently trades at 23 times forward earnings with a forward dividend yield of 2.4%.

Bullish Signals
  • McDonald's U.S. business, which generated 41% of revenue in the first nine months of 2024, is being stabilized through new menu launches and consumer confidence restoration efforts.
  • The international operated segment, accounting for 48% of revenue in Q3 2024, is seeing improvement from the McSmart menu expansion in Europe.
  • The company's loyalty program has 150 million active members as of end-2023, with a clear roadmap to reach 250 million by end-2027.
  • Analysts project a steady 6% compound annual growth rate for earnings per share from 2023 to 2026 driven by digital upgrades and automation.
  • The stock is trading at 23 times forward earnings, which the article characterizes as reasonably valued given its long-term growth prospects.
  • McDonald's has a proven track record of raising dividends for 48 consecutive years, indicating resilience through various economic downturns.
  • Consistent share buybacks over the past decade have reduced the share count by 25%, enhancing per-share value and earnings growth.
Risk Factors
  • The company recently faced an E. coli outbreak in the U.S. from contaminated onions affecting 14 states, requiring a focus on restoring consumer confidence.
  • International developmental licensed markets, including operations in Latin America, China, and the Middle East, face unpredictable macro and geopolitical challenges.
  • Global comparable store sales declined year over year for two consecutive quarters due to inflationary headwinds and slower consumer spending in the U.K. and Europe.
  • The international developmental licensed segment only accounted for 11% of revenue in Q3 2024 but remains vulnerable to ongoing conflicts in the Middle East.
Full Analysis
McDonald's stock has remained flat over the past year despite an S&P 500 gain, following a slowdown in comparable store sales and an E. coli outbreak. The article argues these issues stem from temporary headwinds like inflation, hurricanes, and geopolitical conflicts rather than long-term existential threats to the business. The company is actively addressing these challenges by launching new menu items like the Chicken Big Mac and McValue deals, expanding budget-friendly options in Europe, and focusing on restoring consumer confidence in the U.S. market which still generates 41% of revenue. Long-term growth drivers include a loyalty program with 150 million active members expected to reach 250 million by 2027, digital platform upgrades, labor cost automation, and a franchise model that prioritizes high-margin royalties. Analysts project a 4% revenue CAGR and 6% earnings per share growth through 2026. McDonald's is poised to become a 'Dividend King' after raising its payout for 48 consecutive years, with a forward yield of 2.4%. The stock trades at 23 times forward earnings, which the article deems reasonably valued given its history of weathering economic downturns and consistent share buybacks that have reduced share count by 25% over the last decade.