The Zacks Analyst Blog Highlights McDonald's, Starbucks and Yum! Brands

Here are highlights from Thursday’s Analyst Blog:

McDonald's Stock Down -19% in 6 Months: Buying Opportunity?

McDonald’s Corporation’s shares have declined 18.9% in the past six months, underperforming the industry’s 10.1% decline and the S&P 500’s 11.7% gain. The decline reflects concerns about weak U.S. traffic, inconsistent execution of value offerings and marketing missteps. The company acknowledged that U.S. comparable sales slowed sharply in the second quarter, rising just 0.8%, below its expectations.

The pressure continued into the early part of the third quarter. Management said U.S. comparable sales were slightly negative in July, indicating that the company’s corrective measures will take time to produce results. Against this backdrop, investors may wonder whether the stock’s decline has created an attractive entry point or whether more weakness could lie ahead.

On the other hand, MCD has also underperformed compared with industry peers such as Starbucks Corp. and Yum! Brands, Inc.

U.S. Execution Remains a Key Concern

McDonald’s biggest near-term challenge is getting its U.S. business back on track. Management said the company’s value proposition has improved considerably, with base menu prices now below those of nearby competitors and the $5 Meal Deal and Extra Value Meals performing well. However, execution of the new Every Day Affordable Price menu was inconsistent.

Only about 60% to 65% of the U.S. system was executing the recommended pricing architecture for the under-$3 menu. The company also reduced the number of digital offers and removed its Buy One, Add One for $1 promotion, which hurt visits from loyal customers. Management estimated that these value-related decisions accounted for roughly two-thirds of the U.S. customer traffic shortfall compared with expectations in the quarter.

Restaurant operations also suffered because employees had to manage too many simultaneous product launches, promotions and marketing campaigns. This increased complexity, hurt service times and weighed on customer satisfaction. McDonald’s plans to simplify restaurant operations and reduce noncustomer-facing activities to allow employees to focus more on service.

McDonald’s Has Several Levers for Recovery

Despite the U.S. weakness, the latest results were not uniformly negative. Global comparable sales increased 1.3% in the second quarter, while systemwide sales rose 4% on a constant-currency basis. International markets continued to perform better, with comparable sales increasing 1.5% in International Operated Markets and 1.9% in International Developmental Licensed Markets.

The company is already taking steps to revive U.S. traffic. It plans to increase national digital flash offers, personalize promotions for frequent customers and redirect marketing spending toward proven-value offerings. Management also expects restaurant execution to improve relatively quickly because many of the operational changes are within its control. Marketing improvements are expected to take longer, with management targeting stronger execution in 2027.

Another encouraging area is beverages. McDonald’s new beverage platform is performing ahead of initial expectations in the United States, Canada and Germany. Management said more than half of beverage traffic is occurring after lunch, suggesting the platform is creating incremental occasions. Beverage orders are also benefiting from strong food attachment and higher average checks.

Long-Term Growth Strategy Offers Upside

McDonald’s is also preparing to roll out its McDonald’s > NEXT strategy, focused on improving food taste and quality, strengthening hospitality and simplifying restaurant operations. The company expects productivity opportunities to help fund the investments associated with the strategy. More details are expected at its Investor Day in September.

The company continues to expand the restaurant base, although it pushed the target of reaching 50,000 restaurants globally to 2028 from 2027 because of inflationary development costs and a pressured consumer environment. It remains on track to open about 2,600 gross restaurants in 2026.

Financially, McDonald’s remains resilient. Second-quarter adjusted EPS was $3.38, representing a 5% increase year over year on a constant-currency basis. The company generated more than $4 billion in restaurant margins during the quarter, while its year-to-date adjusted operating margin stood at 46.9%.

McDonald's Growth Projection

Analysts have slightly raised their 2026 earnings expectations for McDonald’s over the past 30 days, with the Zacks Consensus Estimate increasing 2 cents to $12.88 per share. In contrast, the 2027 estimate has been lowered 10 cents to $13.93 per share. Despite these revisions, the consensus estimates point to earnings growth, with 2026 and 2027 EPS expected to increase 5.7% and 8.1% year over year, respectively.

Revenue growth is also expected to remain steady. The Zacks Consensus Estimate projects revenues of $28.18 billion for 2026 and $29.61 billion for 2027, representing year-over-year growth of 4.8% and 5.1%, respectively.

MCD Stock Trades at a Discount

McDonald’s currently trades at a discount to its industry based on the forward 12-month price-to-earnings (P/E) ratio. The stock’s multiple stands at 19.71X, below the industry average of 21.65X. By comparison, Starbucks and Yum! Brands trade at higher forward P/E multiples of 34.61X and 21.14X, respectively.

Wrapping Up

Overall, McDonald’s remains a fundamentally strong business, but its near-term outlook is clouded by weak U.S. traffic, execution issues, softer marketing performance and a challenging consumer environment. Existing investors may prefer to hold as management is actively addressing these issues, while the company’s strong brand, resilient margins, international performance, beverage growth and long-term strategy provide a solid foundation for recovery.

However, the recent weakness in U.S. comparable sales and continued pressure early in the current quarter suggest that the turnaround is still in its early stages. Therefore, new investors may want to wait for clearer signs of sustained improvement in U.S. traffic and execution before initiating a fresh position, even though the stock’s relatively attractive valuation could limit downside once the business begins to regain momentum.

MCD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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