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

Once considered a safe bet in the quick-service restaurant sector, McDonald's Corporation MCD is facing a cloudy future. The company’s 2025 earnings per share (EPS) estimates have been revised downward, dropping from $12.53 to $12.47 over the past 60 days. This downward trend reflects weakening analyst confidence in the stock’s near-term prospects.Image Source: Zacks Investment ResearchThe 60-day earnings estimate growth trend for MCD remains lower for 2025 compared with other industry players, including Kura Sushi USA, Inc. KRUS, Brinker International, Inc. EAT, and Shake Shack Inc. SHAK. Over the past 60 days, earnings estimates for 2025 for KRUS, EAT and SHAK have improved 144.4%, 8% and 1.7%, respectively.McDonald’s struggles mirror a larger challenge in the restaurant industry. Inflation has prompted many budget-conscious consumers to trade eating out for home-cooked meals. This shift has hit McDonald's business, with global comparable sales turning negative in the third quarter of 2024. The company acknowledges its underwhelming performance as a reflection of broader economic and industry pressures that may not be easily resolved in the near term.Shares of McDonald's have declined 11.6% in the past three months compared with the Zacks Retail - Restaurants industry's fall of 6%.3 Months MCD Stock Price PerformanceImage Source: Zacks Investment ResearchDecoding MCD’s HeadwindsThe company is facing challenges with weaker comparable store sales growth. In the third quarter of 2024, global comps declined 1.5% against the 8.8% growth in the prior-year quarter. Its comps decreased for the second straight quarter.The company experienced negative comparable store sales in its internationally operated markets, reflecting broad-based pressure and more cautious spending by customers. Segmental comps decreased 2.1% against the 8.3% growth in the year-ago quarter. The performance of the segment was affected by declining comparable sales in several markets, with France and the U.K. being significant contributors to this downturn. In the IDL segment, comparable sales registered a 3.5% decline against 10.5% growth in the prior-year quarter. The ongoing conflict in the Middle East and declining comparable sales in China outweighed the positive sales performance in Latin America.Higher labor continues to squeeze margins. In the United States, wage expenses have risen above mid-single digits in the third quarter of 2024 due to increases in California and broader wage hikes. Commodity costs also remain a concern.Given the global economic uncertainties and shifting consumer preferences, McDonald’s faces a complex environment that complicates efforts to drive profitable growth. Management’s ability to balance cost pressures while maintaining competitive pricing will be critical.A recent E. coli outbreak linked to contaminated slivered onions used in McDonald’s products across multiple U.S. states has reignited food safety concerns. Although the company quickly addressed the issue by removing the affected ingredients, such incidents have the potential to tarnish brand trust and hurt consumer loyalty. Any further lapses in food safety could magnify reputational risks.McDonald's Playbook for a ComebackIn response to these challenges, McDonald's is taking proactive measures to stabilize its business and restore investor confidence. A cornerstone of its recovery strategy is enhancing its Accelerating the Arches framework, focusing on innovation, value offerings and digital integration.To attract price-sensitive consumers, McDonald's has reinforced its Everyday Affordable Price (EDAP) platform, emphasizing value bundles and cost-effective meal options tailored to the inflationary environment. New product launches, including the Chicken Big Mac and McCrispy line, aim to boost menu excitement and tap into the growing demand for premium chicken products.Digital growth remains a key focus, with continued investments in loyalty programs to drive repeat visits and higher ticket sizes. The MyMcDonald's Rewards program has been instrumental in boosting customer engagement, and the company plans to expand its personalized offers to increase loyalty-driven sales further.Increased focus on Operational efficiencies bodes well. McDonald's is scaling its Ready on Arrival (ROA) initiative, which optimizes kitchen operations to improve order speed and accuracy. This technology-driven approach is expected to enhance the drive-thru experience and reduce labor dependency.Marketing campaigns, such as the viral Grimace Shake promotion, highlight McDonald's success in leveraging nostalgia and creative strategies to capture consumer interest. Future campaigns will likely continue to blend innovation with brand heritage to strengthen customer connections.MCD’s Valuation: A Bargain or a Risk?MCD is trading at a discount to the industry. With a forward 12-month price-to-earnings ratio of 22.35X, which is below the industry average of 24.55X.Image Source: Zacks Investment ResearchTechnical indicators are not supportive of MCD’s performance. As of Thursday, the stock is trading at $279.74, below its 50-day moving average of $292.52. This underperformance could indicate a lack of strong momentum in the near term, suggesting a cautious outlook.MCD Stock Trades Below 50-Day Moving AverageImage Source: Zacks Investment ResearchInvestment Verdict: Hold for NowMcDonald's proactive strategies, including menu innovation, digital growth initiatives, and operational efficiencies, position the company for a potential rebound. Its focus on value-driven offerings and enhanced loyalty programs shows promise in addressing evolving consumer preferences amid inflationary pressures. Additionally, marketing successes and drive-thru optimizations highlight its ability to stay competitive in the quick-service restaurant landscape.However, persistent headwinds cannot be overlooked. Declining comparable store sales across key international markets and rising labor and commodity costs weigh on near-term prospects. The downward revision in earnings estimates for 2025 signals reduced analyst confidence, further underscoring the challenging road ahead.Given these factors, McDonald's stock may not present an immediate buying opportunity. Investors already holding MCD shares should consider maintaining their position while monitoring the company’s ability to balance cost pressures with profitable growth. For new investors, waiting for clearer signs of a sustained turnaround could be prudent.MCD currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Just Released: Zacks Top 10 Stocks for 2025Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report McDonald's Corporation (MCD): Free Stock Analysis Report Brinker International, Inc. (EAT): Free Stock Analysis Report Shake Shack, Inc. (SHAK): Free Stock Analysis Report Kura Sushi USA, Inc. (KRUS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks