McDonald’s looks to regain lost market share with better value perception – analyst

After losing its value perception and stumbling through the post-COVID era with higher prices and declining market share, McDonald’s (NYSE:MCD) finally appears poised to recover through the second half of 2024 and 2025, leading Evercore ISI to bump up its target price by 7% and same store sales estimates.

Evercore reiterated its Outperform rating on the fast-food chain.

“We are increasingly bullish on McDonald’s U.S. business for 2025 with some relative market share trend improvement occurring recently which we believe will continue through [the second half of 2024],” Evercore analyst team led by David Palmer said in Monday’s note, adding that the last week’s success with commemorative cups is evidence that the brand remains strong and becoming “less encumbered” by a poor value perception.

The team now targets same store sales growth for Q3 to be flat year-over-year from their initial outlook for growth to be down 1% initially, and 2025 same store sales growth to increase by 3% from initial estimate by 2% growth.

Similar to other fast-food chains during COVID, McDonald’s (MCD) lost sight of the long-term value proposition and raised prices 40% compared to ~30% for competitors and twice the growth in hourly wages in the U.S. The road back, Evercore says, begins with advertised value tiers, but also includes a more aggressive effort in growth segments like chicken and beverages.

Going forward, it will be important for McDonald’s (MCD) to better support its value perception through advertised value tiers, more careful price increases, and with menu introductions at the mid-priced levels. The company should also focus on speed of service and innovation to support faster growth-menu segments (like chicken and beverage), Evercore says.

“We are big believers that everyday low-priced beverages can be a key traffic driver as we saw the introduction of $1 any size beverages drive a rare year of traffic growth in 2017.”

Shares are up 3% to a 5-month high and in the green for a sixth consecutive day.