You don’t always have to pig out on your favorite stocks. It’s fine to take a small bit of McDonald’s (MCD) stock without going overboard. McDonald’s just posted quarterly results that aren’t stellar, but I am cautiously bullish on MCD stock because the company has a chance to offer better deals for its popular meals.
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McDonald’s is the most famous fast-food restaurant chain in the U.S. For generations, parents would take their kids to McDonald’s because the food tasted good but also because the meals were easily affordable.
Fast-forward to 2024, and it’s a different world because of persistent food-price inflation. Frankly, the consumer’s dollar is getting stretched thin nowadays, and some people are feeling sticker shock when they pull up to the McDonald’s drive-through window. On the other hand, McDonald’s may be able to improve its financials by appealing to inflation-weary consumers.
McDonald’s Customers Are “Discriminating with Their Spend”
It’s funny how corporate CEOs often use fancy language to express unpleasant truths. McDonald’s CEO Chris Kempczinski recently declared, “consumers are more discriminating with their spend,” which really just means that McDonald’s customers aren’t spending as much as they used to. Of course, that’s a serious problem for the fast-food chain.
Kempczinski also said that McDonald’s seeks to accelerate “strategic growth drivers like chicken and loyalty,” which is one of the funniest phrases I’ve ever seen in a quarterly earnings report. Most importantly, though, it’s evident that McDonald’s is losing ground among its loyal customers due to the negative impact of high food prices.
The company’s second-quarter 2024 financial results indicate that McDonald’s is struggling during this time of high inflation. Alarmingly, McDonald’s same-store (or more accurately, same-restaurant) sales declined for the first time since the onset of the COVID-19 pandemic.
So much for “chicken and loyalty,” right? In Q2 of 2024, McDonald’s global comparable sales declined 1% year-over-year, “reflecting negative comparable sales across all segments,” including both U.S. and international markets.
Granted, McDonald’s still managed to avert a huge revenue fall-off despite the company’s comparable-restaurant sales decline. As it turned out, McDonald’s generated $6.49 billion in quarterly revenue, which was nearly flat compared to the $6.498 billion in revenue from the third quarter of 2023. However, the consensus estimate called for Q2-2024 revenue of $6.63 billion, so that’s a miss for McDonald’s.
Furthermore, McDonald’s bottom-line stats weren’t great. The company recorded net income of $2.022 billion, down 12% year-over-year, as well as adjusted earnings of $2.80 per share, down 11% year-over-year. That’s another miss for McDonald’s since the consensus forecast looked for quarterly adjusted earnings of $3.07 per share.
McDonald’s Stock Rallies, Giving Hope for the Future
Those weren’t terrific results, you must admit. Yet, McDonald’s stock traders digested those results and pushed the share price up 4% today, soon after the company released its quarterly results. Was this just a random miracle, or does the market envision hope for the future with McDonald’s?
Most likely, optimistic stock traders are looking forward to better results for the current quarter. McDonald’s introduced $5 value meals in the U.S. on June 25, so there was much time for those budget-friendly deals to have a positive impact on the company’s second-quarter results.
In other words, the $5 meals should probably boost McDonald’s current-quarter revenue and produce a better quarterly report three months from now. Since the market is very forward-looking nowadays, stock traders apparently aren’t too concerned about the problems of 2024’s second quarter anymore.
Joe Erlinger, the U.S. president of McDonald’s, stated, “Some restaurants logged swift sales after the [value meal] bundle’s launch,” according to a Wall Street Journal report. Moreover, Bloomberg reported that McDonald’s is likely to continue offering $5 value meals at most of its U.S. locations beyond the initial four-week period of these deals. Thus, McDonald’s could end up staging a strong top-line comeback when the company reports its third-quarter 2024 financial results.
Is McDonald’s Stock a Buy, According to Analysts?
On TipRanks, MCD comes in as a Moderate Buy based on 19 Buys and eight Hold ratings assigned by analysts in the past three months. The average McDonald’s stock price target is $302.13, implying 15% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell MCD stock, the most profitable analyst covering the stock (on a one-year timeframe) is David Palmer of Evercore ISI, with an average return of 14% per rating and an 84% success rate. Click on the image below to learn more.
Conclusion: Should You Consider McDonald’s Stock?
McDonald’s certainly didn’t post mind-blowing second-quarter financial results. Yet, future-facing investors should prepare for a solid third quarter now that McDonald’s is responding to food-price inflation with $5 value-meal deals.
It remains to be seen how much the $5 meals will affect McDonald’s top-line results. That said, I am cautiously bullish on MCD stock and would consider taking a small share position today.
