McDonald’s Comeback Gaining Traction
McDonald’s Corporation (NYSE:MCD) is on a path to recovery, according to Evercore ISI analyst David Palmer. The analyst expressed growing optimism for McDonald’s U.S. business, projecting improvements in market share trends through 2025. Palmer highlighted recent successes, such as the launch of limited-edition collector’s cups, which not only boosted third-quarter sales but also signaled a strengthening brand image, overcoming past issues with value perception.
Challenges and Competitive Landscape
Despite recent gains, McDonald’s faces substantial competition as consumers react to rising restaurant prices. In 2025, the fast-food giant plans to compete by increasing the frequency of new menu items across medium and premium price tiers. Palmer raised McDonald’s price target to $320, up from the recent close of $278.49.
In Q2, McDonald’s U.S. same-store sales fell by 0.7%, marking the first decline in 16 quarters, primarily due to reduced foot traffic. However, positive growth in digital and delivery channels offered some relief. The company extended its $5 meal deal through August while working on a permanent value platform akin to the old $1 $2 $3 menu.
Value Perception and Menu Innovation
CEO Chris Kempczinski acknowledged a recent narrowing of McDonald’s value leadership gap. The fast-food chain is contending with changing consumer preferences, with competitors like Chipotle Mexican Grill (NYSE:CMG), Wingstop Inc. (NASDAQ:WING), and Shake Shack Inc. (NYSE:SHAK) experiencing positive sales growth.
Palmer forecasts it will take a decade for McDonald’s foot traffic to return to early 2010 levels. The decline began in 2012 following the removal of the double cheeseburger from the Dollar Menu and was exacerbated by COVID-19, which led to a 50% increase in check size but a further 10% drop in traffic.
Restoring Value Perception
Analysts suggest that McDonald’s needs to balance value messaging with its core strengths, such as menu innovation and marketing. TD Cowen analyst Andrew Charles emphasized the need to return to strategies that made the brand successful, including menu innovation and effective marketing campaigns. Charles also noted that everyday low-priced beverages could drive traffic, recalling the success of the $1 any-size beverages in 2017.
Future Outlook
CEO Kempczinski sees significant growth opportunities in the chicken category, which is expanding faster than beef globally. The success of longstanding menu items like McNuggets and McChicken, along with new additions like McCrispy and McSpicy sandwiches, supports this strategy.
Palmer acknowledges that while McDonald’s might not be Evercore’s top stock pick, the company is focusing on key growth drivers, including improvements in same-store sales, new value messaging, and international market performance in Q4. He expects these factors, along with an easing Federal Reserve rate cycle, to bolster valuation and support double-digit returns in 2025.
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