McDonald's Value Proposition: Outshining DPZ and PEP

March 24, 2025 at 07:45 AM EDT

McDonald's sign M

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Consumer discretionary stocks are under pressure, and that weakness extends to several iconic, large-cap blue-chip stocks. However, at a time when many stocks are underperforming, McDonald’s Corp. (NYSE: MCD) is trending in the right direction. After navigating through a tricky 2024, MCD stock is finding firmer footing as it leans into a value proposition that is setting it apart from PepsiCo Inc. (NASDAQ: PEP) and Domino’s Pizza Inc. (NASDAQ: DPZ), two of the leading names in this sector.

For the last 12 months, MCD stock has delivered a total return of over 11%. By contrast, PEP stock was down about 11% during that time, and DPZ stock delivered a total return of around 5.5%. All three stocks pay dividends, with Pepsi, McDonald’s, and Domino’s having 52, 49, and 12 consecutive years of dividend increases, respectively.

An 11% return pales compared to some high-growth names in the technology sector that delivered 100% or more returns over the same period. As investors look for safer options among stocks, McDonald’s is showing why it continues to offer value.

Bouncing Back From a Forgettable Year

To be fair, investors didn’t love MCD stock in the first half of 2024. In the second quarter, revenue was flat year over year (YoY), and earnings per share (EPS) were lower by 6% YoY.

There were several reasons for the soft numbers. First, McDonald’s was on the wrong end of the GLP-1 weight loss phenomenon. As waistlines shrank, so did McDonald’s margins. PepsiCo is also citing the impact of GLP-1 drugs on its snack food business.

Second, even when MCD stock began to surge in October 2024, it was knocked back after an E-coli outbreak caused a marked loss of traffic. The company quickly responded to the outbreak, which seemed to be confined to the company’s Quarter Pounder hamburger and was primarily a regional event. Still, the company is still facing weak traffic in the most highly impacted areas.

Rediscovering Its Value Proposition

The single most significant factor in the company’s sluggish 2024 performance was the impact of inflation on its core customers. Although McDonald’s is known as a low-priced alternative among fast-food chains, prices were still too high for consumers who were spending less per visit.

Those customers noticed that McDonald’s was raising its prices, which most restaurant chains have done. But in this case, customers reacted harshly out of necessity. In May 2024, Lending Tree released a survey in which 78% of respondents cited eating at a fast-food restaurant as a luxury due to inflation.

McDonald’s reacted swiftly in June 2024 by unveiling a $5 Meal Deal. This allowed customers to get a McChicken, McDouble, or a 4-piece chicken nugget entree with fries and a drink. This is putting pressure on margins. However, the company will have little choice but to continue down this path.

To help bolster earnings, McDonald’s will need to rely on continued savings from its investment in a digital strategy and the boost it will get as it continues to open new locations.

A Safe Way to Stay Invested

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MCD stock recently hit an all-time high of around $326. And despite pulling back, the stock is finding support near its 50-day simple moving average. A trailing 12-month price-to-earnings ratio of around 27x is consistent with the stock’s five-year average and nearly half that of fast-casual giant Chipotle Mexican Grill Inc. (NYSE: CMG).

The consensus price of $323.89 suggests the stock could have about 5.8% more upside. However, recent analyst price targets have been around $240.

However, assuming investors add just another 5% to the 5% stock price growth already achieved, the total return reaches approximately 12% when including a 2.30% dividend yield as of March 20. This aligns with the S&P 500’s historical total return and positions McDonald's as a strong performer in 2025.

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