McDonald's Stock's Earnings Estimates Going Down: Hold or Fold?

Core Viewpoint - McDonald's Corporation is experiencing a decline in analyst confidence and facing significant challenges in the quick-service restaurant sector, leading to downward revisions in earnings estimates for 2025 [1][19]. Financial Performance - The 2025 earnings per share (EPS) estimates for McDonald's have been revised down from $12.53 to$ 12.47 over the past 60 days, indicating weakening analyst confidence [1]. - Current quarter EPS estimates are at $2.83, down from$ 2.91 90 days ago, while next year's EPS remains at $12.47 [2]. - McDonald's shares have declined by 11.6% over the past three months, compared to a 6% decline in the Zacks Retail - Restaurants industry [4]. Comparable Store Sales - Global comparable sales for McDonald's turned negative in Q3 2024, declining by 1.5% compared to an 8.8% growth in the same quarter the previous year [3][6]. - Internationally operated markets also saw a decrease in comparable store sales, with a 2.1% decline against an 8.3% growth in the prior-year quarter [7]. - The IDL segment experienced a 3.5% decline in comparable sales, contrasting with a 10.5% growth in the previous year [7]. Economic and Industry Challenges - Inflation has led budget-conscious consumers to prefer home-cooked meals over dining out, negatively impacting McDonald's business [3]. - Rising labor costs, particularly in the U.S., have increased wage expenses above mid-single digits, further squeezing margins [8]. - A recent E. coli outbreak linked to McDonald's products has raised food safety concerns, potentially damaging brand trust and consumer loyalty [9]. Strategic Initiatives - McDonald's is enhancing its "Accelerating the Arches" framework, focusing on innovation, value offerings, and digital integration to stabilize its business [10]. - The company is emphasizing its Everyday Affordable Price (EDAP) platform to attract price-sensitive consumers, with new product launches aimed at boosting menu excitement [11]. - Digital growth is a priority, with investments in loyalty programs like MyMcDonald's Rewards to drive customer engagement and repeat visits [12]. - Operational efficiencies are being improved through initiatives like the Ready on Arrival (ROA) program, which optimizes kitchen operations [13]. Marketing and Brand Strategy - Marketing campaigns, such as the Grimace Shake promotion, have successfully leveraged nostalgia to capture consumer interest [14]. - McDonald's is trading at a forward price-to-earnings ratio of 22.35X, below the industry average of 24.55X, indicating a potential bargain [15]. Technical Indicators - McDonald's stock is currently trading at$ 279.74, below its 50-day moving average of $292.52, suggesting a lack of strong momentum in the near term [16].