Bernstein on McDonald's (MCD): 'We Expect Investors to Reward MCD'

Bernstein SocGen Group analyst Danilo Gargiulo reiterated a Market Perform rating and $310.00 price target on McDonald's (NYSE: MCD).

The analyst commented: "McDonald's is really committed to restoring value gap vs peers, investing $40M in incremental marketing support in September to support the launch of Extra Value Meals. The new combos will be priced at 15% lower than individually sold items and management expects the impact to be larger than the $5 meal deal, given the broader appeal (~18-20% of consumers buy combos) and the broad marketing investment. The investment should not materially change Op Margin for FY25. While the incremental support to selected franchisees will cease in 1Q, we left the dinner convinced that MCD would be willing to expand the program, offer more LTO or go deeper on value if the incrementality were to fade or not be sufficient to generate cashflow neutrality for franchisees.

A window of opportunity to gain share and grow the pie. While management believes the traffic incrementality will offset the lower check after the first quarter, the decisiveness of launching the strategy without a business case could give McDonald’s a window to regain share of low income consumers faster in absence of an immediate response from competitors. We don’t expect a similar program to be embraced by many competitors given the more compressed cashflows of franchisees. At the same time, as tariff impact could start to be perceived more acutely by consumers and retailers may raise prices, McDonald’s pricing reduction could help the category regain relative value perception.

In a market plagued with volatility and uncertain outlook on consumers, we expect investors to reward MCD for its earning visibility, stability of cashflow and NT catalysts (strong marketing, LTOs, value support). With the resurgence of value focus in a likely accelerating inflationary environment, we see few stocks that could be as defensive as MCD - even as we maintain a negative QSR category outlook and see limited upside, given the current valuation."

For an analyst ratings summary and ratings history on McDonald's click here. For more ratings news on McDonald's click here.

Shares of McDonald's closed at $315.76 yesterday.

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