McDonald's Earnings: Consumer Pressure Takes a Big Bite out of Industry's Near-Term Prospects

We remain ready buyers of wide-moat McDonald's, which stands to benefit from a durable scale-driven procurement cost advantage, an iconic core menu, robust digital penetration, and unparalleled marketing scale that should prop up its results amid a tough environment. That said, consumer pressure remains stout, as evidenced by the restaurant industry bellwether's underwhelming results, and the resultant combination of deal-seeking behavior and a mix-shift toward the cheaper grocery store channel points toward a year of weak growth in the industry. As we digest McDonald's second-quarter earnings report, we plan to trim our 2024 and 2025 systemwide sales growth estimates to 2% and 3.9%, respectively, from 5.1% and 5.4% previously, driving an expected low-single-digit downward revision to our $300 fair value estimate.