A Golden Opportunity for Long-Term Investors
McDonald’s, the world’s largest fast-food chain, has been a reliable stock for investors seeking steady returns. Despite the S&P 500’s 24% growth over the past 12 months, McDonald’s stock has remained stagnant. However, this slump may present a prime buying opportunity for four compelling reasons.
Temporary Headwinds Mask Long-Term Potential
McDonald’s global comparable store sales have declined year over year for two consecutive quarters, primarily due to temporary challenges. The U.S. business was affected by inflationary pressures, hurricanes, and an E. coli outbreak, while international markets struggled with slower consumer spending and geopolitical conflicts. These near-term challenges shouldn’t deter long-term investors, as analysts expect revenue to grow at a compound annual growth rate (CAGR) of 4% from 2023 to 2026.
Counteracting Near-Term Headwinds
McDonald’s is taking proactive steps to address these challenges. In the U.S., the company is launching new menu items, extending its $5 meal deal, and rolling out its mix-and-match McValue menu. In Europe, it’s expanding its cheaper McSmart menu to combat inflation. These efforts should stabilize the company’s core markets and offset international challenges.
Strengthening Global Loyalty Programs
McDonald’s continues to grow its global loyalty programs, which reached 150 million active members at the end of 2023. The company expects to reach 250 million members by the end of 2027. As it locks in more customers, it’s upgrading its digital platform with personalized offers and automating locations to control labor costs.
A Compelling Investment Case
With most locations already franchised, McDonald’s generates profits from higher-margin royalties and fees. Consistent buybacks have reduced its share count by 25% over the past 10 years, driving long-term earnings growth. Analysts expect earnings per share to grow at a steady CAGR of 6% from 2023 to 2026. At $292 a share, the stock looks reasonably valued at 23 times forward earnings, with a forward dividend yield of 2.4%. McDonald’s ability to raise its dividend for nearly a half century indicates it’s an evergreen investment that has weathered economic downturns.
Don’t Miss Out on This Opportunity
McDonald’s presents a compelling investment case for long-term investors. With its temporary challenges being addressed, and its strong loyalty programs, digital platform, and consistent buybacks driving growth, now may be the perfect time to buy and hold this stock.
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