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McDonald's Corporation MCD is currently trading at a discount compared with its industry peers. With a forward 12-month price/earnings ratio of 23.91X, the stock is priced below the industry average of 26.29X and the broader Retail-Wholesale sector’s 24.4X.

P/E (F12M)

In the past three months, MCD has delivered 8.2% growth, underperforming the industry’s 8.5% rally and the S&P 500’s 8.3% rise. The company's stock performance also lagged major industry players. Chipotle Mexican Grill CMG has jumped 9.8%, Papa John's International, Inc. PZZA has gained 8.4% and CAVA Group CAVA has skyrocketed 51.5%.

Stock Price Performance

E. coli Outbreak Hurts MCD

On Oct. 23, MCD shares declined 5% after the Centers for Disease Control and Prevention reported an E. coli outbreak linked to McDonald’s Quarter Pounder burgers, resulting in 10 hospitalizations and one fatality. An E. coli outbreak linked to slivered onions from one supplier impacted McDonald's, particularly in the Midwest U.S. regions. Although the source was promptly removed from the supply chain, McDonald's had to work on restoring consumer confidence. The outbreak did not impact third-quarter 2024 numbers but might weigh on the near-term U.S. performance.

Comps Decline is Concerning for MCD

McDonald's is grappling with a continued decline in comparable store sales growth. In the third quarter of 2024, global comparable sales fell 1.5% against the 8.8% rise seen in the prior-year period, marking the second consecutive quarter of negative comps.

The company experienced negative comparable store sales in its internationally operated markets, reflecting broad-based pressure and more cautious spending by customers. Segmental comps decreased 2.1% against 8.3% growth in the year-ago quarter. The performance of the segment was affected by declining comparable sales in several markets, with France and the U.K. being significant contributors to this downturn.

In the IDL segment, comparable sales registered a 3.5% year-over-year decline against 10.5% growth recorded in the prior-year quarter. The ongoing conflict in the Middle East and declining comparable sales in China outweighed the positive sales performance in Latin America.

Factors Acting in Favor of MCD

The company continues to benefit from menu innovations. McDonald’s introduced the Chicken Big Mac, which saw strong demand in the United States in October. The Big Arch burger pilot was well-received in markets like Portugal, Germany and Canada.

The company continues to excel in delivering a superior customer experience with notable operational improvements, improved service times and increased customer satisfaction across most major markets. The focus on core menu items has enhanced kitchen execution, exemplified by the Best Burger initiative. In more than 80% of markets, this training highlights fundamental standards, and boosts taste and quality perceptions. It is on track to deploy Best Burger in nearly all markets by the end of 2026.

McDonald’s believes that there is a huge opportunity to grow all its brands globally by expanding its presence in existing markets and entering new ones. Its expansion efforts continue to drive its performance. MCD plans to open more than 2,100 restaurants globally in 2024, including 500 openings in the United States and the IOM segment, and 1,600 (including nearly 1000 in China) inaugurations in the IDL market. Also, the company expects net restaurant unit expansion to contribute 2% to 2024 systemwide sales growth. It targets opening 50,000 restaurants by 2027.

Amid economic challenges and waning consumer confidence in China, McDonald's has strengthened its brand presence by integrating its food offerings with local culture and community engagement.

In the third quarter of 2024, the "Collector's Edition" campaign struck a chord with customers by blending nostalgia with fresh marketing approaches, driving traffic and average check sizes. This campaign reflects McDonald's broader strategy to deliver memorable customer experiences while spotlighting core menu items.

International markets, including the U.K. and Australia, introduced popular promotions like the Grimace Shake, demonstrating McDonald's capacity to scale winning concepts across different regions.

MCD Earnings Estimate Revisions

Over the past 30 days, McDonald's earnings forecasts have seen a mix of revisions. Earnings estimates for 2024 have witnessed upward revisions of 0.4% to $11.77. However, earnings estimates for 2025 have witnessed downward revisions of 0.4% to $12.53.

End Notes

The company faces challenges, including declining comparable store sales and an E. coli outbreak that hurt consumer confidence, particularly in the United States. These factors have led to McDonald's underperformance relative to its industry peers in recent months.

Despite these headwinds, McDonald's continues to benefit from strong menu innovations, global expansion efforts and successful marketing campaigns that have resonated with customers across regions. Given these mixed indicators, holding on to the stock may be prudent for current investors, while new investors might consider waiting until more favorable conditions emerge or growth trends stabilize. MCD currently has 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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