McDonald’s stock (MCD) struggled last year, trading flat and lagging behind the overall market. This underperformance was not without reason, as investor sentiment was dampened by factors such as declining comparable store sales, macroeconomic pressures, and industry-wide challenges hampered revenue growth. Yet, McDonald’s latest results hinted at brighter days ahead. Specifically, a rebound in sales and earnings growth in 2025 will likely expose the stock’s attractive valuation. Thus, I’m bullish on MCD stock.
Don't Miss Our New Year's Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Why McDonald’s Struggled in 2024
McDonald’s underwhelming performance in 2024 reflected several external and internal challenges that led to somewhat weak results. The company faced macroeconomic headwinds as inflation persisted, and low-income consumers in major markets like the U.S., Germany, and Canada opted to eat at home more often due to elevated dining out costs. In fact, the QSR (Quick Service Restaurant) industry traffic declined across most markets, weighing on McDonald’s struggles.
MCD’s management stressed other specific issues throughout the year-to-date earnings calls. For example, the company struggled to maintain its traditional value leadership. Increased menu prices, while necessary to combat inflation, disrupted value programs, leading to a negative shift in its perceived affordability gap compared to competitors. In addition, operational inefficiencies in markets like France and the UK further weighed on McDonald’s overall performance.
These challenges were again sustained throughout McDonald’s latest Q3 report, with global comparable sales declining by 1.5%. International markets, particularly those impacted by geopolitical tensions and economic uncertainty, saw notable declines. Meanwhile, the U.S. market reported only marginally better results, driven by marketing campaigns and targeted value initiatives like the $5 Meal Deal. Nevertheless, these measures did not counterbalance broader headwinds, leaving investors skeptical about short-term growth.
Clear Skies Ahead: Signs of Recovery in 2025
Despite the challenges of 2024, which endured through Q3, as I mentioned earlier, there were indications that this quarter may represent a turning point. In particular, consolidated sales grew 2.7% year-over-year for the quarter, a sharp improvement from Q2’s -0.1% decline. Since comparable sales were down, as noted earlier, the sales growth was driven by continued store openings, with the total number of restaurants reaching 42,819 at the end of the quarter. I believe this shift in consolidated sales, while modest, implies that these are the initial stages of a gradual recovery.
The company’s Accelerating the Arches strategy has clearly started yielding results. Store openings are on track to surpass 1,500 annually, and digital penetration continues to increase, with loyalty members now comprising over 25% of systemwide sales. I believe these efforts are setting the stage for stronger growth moving forward. Wall Street analysts seem to agree, as McDonald’s revenue is expected to grow by 3.8% in FY2025 and then accelerate to 5.8% in FY2026. Given McDonald’s scalable royalty-based model, even soft revenue growth translates into outsized earnings gains. Indeed, consensus estimates see EPS growth of 6.8% in FY2025 and 8.4% in FY2026, following the 1.1% decline projected for FY2024.
A Valuation Worth Biting Into
Following McDonald’s lagging share price and the anticipated growth rebound, I believe the stock is trading at a rather attractive valuation. At about 23 times next year’s EPS, McDonald’s stock offers a great entry point, especially considering its unmatched global footprint and enduring resilience in challenging economic environments. Even in 2024’s tough landscape, we are talking about low-single-digit pullbacks in sales. This resilience is also illustrated in the company’s extensive, 49-year-long dividend growth track record.
You have to view this multiple in the context of continued growth initiatives such as expanding loyalty programs and introducing new formats like “Ready on Arrival” drive-thru lanes, which should position McDonald’s mid-single-digit comparable sales growth, matching Wall Street’s estimates. Furthermore, McDonald’s commitment to delivering value through targeted pricing and menu shifts ensures the fast food chain remains competitive within the QSR sector. Thus, I wouldn’t be worried about McDonald’s losing its appeal among its core target group.
Is MCD Stock a Buy, According to Analysts?
Wall Street seems optimistic about McDonald’s following last year’s underperformance. Specifically, MCD stock features a Moderate Buy consensus rating based on 16 Buys and 10 Hold recommendations over the past three months. At $321.14, the average MCD stock price target implies an upside potential of 8.94% from its current levels.
For the best guidance on buying and selling MCD stock, look to Evercore ISI’s (EVR) David Palmer. He is the most accurate and profitable analyst covering the stock (on a one-year timeframe), boasting an average return of 14.81% per rating and a success rate of 91%.
Conclusion
Overall, while 2024 was a challenging year for McDonald’s, I believe that signs of a recovery in 2025 make the stock an attractive pick. MCD’s strategic initiatives, like store openings and innovative sales formats, should drive a turnaround in sales and earnings growth. When combined with its resilient business model, McDonald’s stock appears well-positioned for long-term gains. For these reasons, I feel quite bullish about the fast food behemoth.
