After navigating a period of significant inflation that saw prices soar, McDonald’s (MCD) has set its sights on championing value meals as a strategic move. On their latest fourth-quarter earnings call, the emphasis on “value” and “affordability” was mentioned over 50 times, underscoring their commitment to this approach.
Historically, McDonald’s has outperformed competitors in the fast-food sector, thanks to its extensive reach and franchise-based model. Let’s explore the company’s recent performance to determine if now might be an opportune moment to invest in their stock.
### Emphasizing Value Meals
The fourth-quarter results for McDonald’s were somewhat disappointing. The company contended with an E.coli outbreak early in the quarter, which necessitated the temporary removal of the beloved Quarter Pounder from menus at some locations. This scare notably affected customer traffic, especially in the U.S. states involved. However, McDonald’s swiftly identified the issue, traced it to contaminated sliced onions, and the CDC declared the ordeal over by early December.
U.S. sales reached their lowest point in early November following the outbreak, but started to recover afterwards. U.S. same-store sales fell by 1.4% during the quarter, a relatively modest decline given the circumstances. While the average check size dwindled, a small uptick in the number of guests was noted.
International markets painted a much brighter picture, with comparable-store sales rising by 4.1%, driven by robust sales in Japan and the Middle East. Company-operated locations internationally experienced a meager 0.1% increase, affected by weaker performance in the U.K.
Globally, same-store sales inched up by 0.4%, contrasting with a 3.4% rise from the previous year—beating analyst projections of a potential 1% drop, according to StreetAccounts. Q4 revenue held steady at $6.39 billion, slightly below the $6.44 billion forecasted by analysts, as per LSEG’s data. Adjusted earnings per share (EPS) slipped by 4% to $2.83, matching analyst predictions.
Looking forward, McDonald’s plans a hefty investment between $3 billion and $3.2 billion this year for new locations. By 2025, they aim to open about 2,200 restaurants, with 25% in the U.S. and international operated segments, and aspiring to establish 1,000 new outlets in China. They anticipate an overall growth of slightly more than 4% in their unit count, achieving 1,800 net additions.
The company also anticipates its adjusted operating margin will surpass 46.3% in 2024, though it expects foreign exchange rates to pose a $0.20 to $0.30 challenge to its EPS.
McDonald’s is wholeheartedly embracing value propositions this year, kicking off with the introduction of the McValue platform in the United States in January. Additional enhancements to value programs in international territories are scheduled for the first quarter. In Europe, the 4-euro Happy Meal has already uplifted value perception, meanwhile, in the U.S., the $5 Meal Deal has resonated with customers.
Addressing potential impacts on gross margins, McDonald’s noted these promotions boost additional purchases and average checks for $5 Meal Deals exceed $10. Furthermore, their ‘Buy 1 Add 1 for $1’ campaign has contributed positively to overall check transactions.
The company expects a full recovery in sales following the E.coli incident by the beginning of the second quarter. They also predict improved margins compared to 2024 levels and have fresh menu innovations lined up for this year. Their “Best Burger” initiative, focusing on slight improvements in burger preparation, aims to heighten customer satisfaction and will be implemented globally by the close of 2026.
### Should You Buy McDonald’s Stock?
McDonald’s has adeptly managed to keep the fallout from its E.coli predicament to a minimum, suggesting a swift path to recovery by the second quarter. Their focus on delivering value is timely, offering a promising strategy as customers feel the pinch of quick-service restaurant prices. The value-centric approach combined with enticing new menu items typically serves to capture market share from rivals.
The company’s commitment to advancing digital orders and expanding its loyalty program further boosts sales opportunities through tailored offers. By the end of 2024, McDonald’s boasted 175 million active loyalty members.
From a financial perspective, McDonald’s stock trades at a forward price-to-earnings ratio of just under 25 against 2025 analyst estimates, aligning with its historical values.
Ultimately, McDonald’s remains a robust long-term investment. The iconic brand continues its expansion journey, enhances growth through digital orders and loyalty programs, and strategically leans into its value-oriented foundations to capture more market share.
