Wells Fargo has recently unveiled its top restaurant stock picks for the upcoming year and with McDonald's (MCD) has secured a top spot. Sweetening the deal is the fact that the fast-food staple is a Dividend Aristocrat, having raised its dividend payouts for 49 consecutive years.
Looking into the new year, Wells Fargo is confident that McDonald's can benefit from improving traffic and the resolution of E. coli concerns linked to onions served at its locations.
Plus, McDonald's is capitalizing on digital sales, which reached nearly $9 billion across its top six markets, and its "Best Burger" strategy – a goal to strengthen its top product – now implemented in 70 regions with positive early results. Analysts believe these innovations, coupled with restaurant expansion, set the stage for sustained growth. The broader restaurant industry is projected to exceed $1 trillion in annual sales in 2024. This positions McDonald’s to capture a significant share of the market.
About MCD Stock
Valued at a hefty market capitalization of $208.5 billion, McDonald's is a powerhouse in the quick-service restaurant industry. However, shares were rocked by news of an E. coli outbreak stemming from onions served in its restaurants. Following the news, shares of the fast-food giant plummeted more than 7% in a single trading session, as investors questioned its product safety and brand integrity.
Overall, MCD shares have been flat this year due to concerns about rising costs and price sensitivity among its core customer base. However, the stock has recently shown resilience, rebounding 21% from its 52-week low of $245, signaling a gradual recovery.
Valuation and Dividend Hike
McDonald’s has solidified its position as a leader among dividend-paying stocks, having increased payouts for 49 consecutive years, earning the prestigious title of Dividend Aristocrat. In its most recent quarter, the company raised its dividend by 6%, boosting the quarterly payment to $1.77 per share, or $7.08 annually. The current yield stands at approximately 2.4%, much higher than the sector median of 1.6%.
From a valuation standpoint, McDonald’s trades at relatively high multiples. Its price-earnings ratio of 25 times and a price-to-sales ratio of 8 times come in above the sector medians of 18x and 0.95x, respectively. However, the stock is trading at a 7% discount relative to its historical valuation, offering potential opportunities for investors.
McDonald's Delivered Mixed Q3 Results
McDonald's has over 40,000 locations worldwide. Its franchise-based model generates steady cash flow through fees and royalties, bolstering financial resilience.
In the third quarter, McDonald's reported revenue of nearly $6.9 billion, surpassing estimates by $50 million and marking 3% year-over-year growth. While comparable sales in the U.S. rose by 0.3%, global comparable sales declined by 1.5%, partly due to geopolitical challenges in the Middle East and China. This led to a 2% drop in McDonald's stock on earnings day. Net income declined by 3% to $2.25 billion, but diluted and adjusted EPS of $3.23 exceeded analysts’ expectations of $3.18.
McDonald's maintains a strong balance sheet, with free cash flow margins of 28% over the past two years. In Q3, it generated $4.8 billion in free cash flow and holds $1.2 billion in cash and equivalents. Its property and equipment assets exceed $39 billion, reflecting the scale of its global operations.
Looking forward, McDonald’s is advancing its "Accelerating the Arches" strategy, focusing on value-oriented initiatives such as the McValue platform, sustainability partnerships, and enhanced digital engagement. The company aims to attract 250 million active loyalty members and open 1,000 new restaurants annually by 2027.
Wells Fargo analysts project that McDonald's U.S. comparable sales will rebound to low single-digit growth by the end of Q4. Contributing to this outlook are the upcoming McValue menu launch and the return of popular items like Snack Wraps, which could catalyze a sales recovery.
Analysts forecast McDonald’s revenue to grow to approximately $27 billion in 2025, a 4% increase compared to 2024's projection of $26.1 billion.
Recent News About MCD
On Nov. 22, McDonald's announced the nationwide launch of its McValue menu, scheduled for release on Jan. 7, 2025. The platform will include customizable "Buy One, Add One for $1" deals, fan favorites like the $5 Meal Deal, and localized offers, reinforcing McDonald’s commitment to affordability amid economic challenges.
On Nov. 14, The fast-food company revealed a collaboration with Syngenta and Lopez Foods to incorporate Enogen corn into its beef production, improving feed efficiency and reducing greenhouse gas emissions. This partnership aligns with the company’s sustainability goals and aims to rebuild consumer trust following the E. coli outbreak.
What Do Analysts Say About MCD Stock?
Analysts remain optimistic about MCD's stock prospects, holding a consensus “Moderate buy” rating. Among 34 analysts covering the stock, 18 assigned it "Strong Buy," 2 gave a "Moderate Buy," and 14 recommended a “Hold" rating.
The average 12-month price target for MCD is $324.03, which suggests the stock could gain 11% from current levels. The Street-high price target is $360, representing a premium of 23%.
