McDonald’s Underwhelmed in Q4: Why Investors Shouldn’t Worry

Key Points

• McDonald's Q4 results were underwhelming, but analysts anticipated the weakness and expectations for 2025 are more optimistic.
• Cash flow is sufficient to sustain the Accelerating the Arches turnaround strategy, which increases the company's consumer leverage. 
• Analysts trimmed targets early in the year but continue to show a high conviction this stock will hit new highs in 2025. 

McDonald’s NYSE: MCD Q4 and full-year 2024 results were underwhelming. Still, the uptrend in its share price will continue because of improving business leverage, solid cash flow, and the low bar set by the analysts. The analysts' trends include numerous stock price targets and quarterly forecast reductions that suggested the weakness was expected. 

100% of the revenue and earnings targets were lowered since the previous earnings report, with most leading to the low-end range. Now, with the worst behind it and growth expected to accelerate in 2025, the market is set to rebound and move up to set new highs by year’s end. 

McDonald’s Tepid Results Sustain 2025 Cash Flow and Capital Return Outlook

McDonald’s Q4 results were not spectacular but revealed improving business leverage tied to its Accelerating the Arches strategy. While U.S. consumers spend less per trip, the number of visits is rising, compounded by increased loyalty membership. Loyalty membership grew by 30% in 2024, 15% on a trailing 90-day basis at the end of Q4, setting the company up for leveraged growth when consumer habits improve. It is debatable when that happens, but economic tailwinds are expected to develop this year due to the labor market's strength. The January 2025 labor data aligns with historically healthy conditions, and some indicated a positive shift in habits, including reduced layoffs, hiring plans, and total jobless claims. 

McDonald’s $6.39 billion in net revenue is down 0.3% year over year and missed the consensus estimate by a slim 130 basis points. The weakness in the U.S. and International Operated Markets was offset by strength in the International Developing Markets, which grew by 4.1%. Looking forward, analysts forecast revenue to grow by more than 3% and margin to improve. 

The earnings result for Q4 was as tepid as the revenue but sufficient to sustain the company’s restructuring, balance sheet health, and capital return. GAAP earnings were flat year over year due to one-offs, and adjusted earnings contracted by 4%, but this had no material impact on the outlook. 

The balance sheet highlights reflect the effect of acquisition and increased business investment, but leverage remains low, and dividends and repurchases are sustainable because of the cash flow. Even with the impact of restructuring, operating income is running above 31%, which is impressive for any restaurant. Restructuring costs will soon pass, and the impact of business investment, including technology and marketing, will help drive growth and earnings improvements. 

Analyst and Institutional Trends Align With McDonald’s Stock Price Trend

The analysts have issued numerous price target reductions, but that doesn’t mean they’re bearish—far from it. The 25 tracked by MarketBuy peg it at a consensus of Moderate Buy in early February, and there is a bullish bias, with 60% rating it at Strong Buy or Equivalent. The price target reductions at the end of 2024 and early 2025 aligned with the consensus estimate of nearly $320. That would be a new all-time high for the market, and the analysts' sentiment is echoed in the institutional activity. Institutional activity includes buying on balance for seven consecutive quarters, including the first six weeks of Q1 2025. 

McDonald’s stock price trend is bullish and will likely continue increasing. The initial market reaction aligned with the trend and had the stock up more than 1% in premarket trading. Assuming the market follows through on this signal after the open, MCD stock could retest its all-time highs before mid-year. If not, this market might retest its support with strong support expected in the $280 to $290 region. The risk is that analysts will continue to lower their estimates for 2025 and create a headwind for sentiment. In that scenario, MCD shares could wallow near current levels until later in the year.