Financial Report Outlook | McDonald's Corporation (MCD.US) hits a 52-week low, can promotional combos withstand the impact of the war?

McDonald's will release its first quarter 2026 financial report before the US stock market opens on Thursday. According to FactSet's aggregated data, Wall Street expects McDonald's Q1 revenue to be $6.47 billion, a year-on-year increase of approximately 8.6%; adjusted earnings per share are expected to be $2.75, slightly higher than the $2.67 in the same period last year. The expected growth rate of same-store sales has become the focus of the market. The Wall Street consensus expects a 3.9% growth in the US market, compared to the impressive growth of 7% in the previous quarter. If achieved, this will be the fourth consecutive quarter of growth, but the quarter-on-quarter slowdown will be significant. International markets are expected to grow by 4%. Stock performance: from an all-time high to a 52-week low, market value evaporated by 16.5% in six months From market trading data, McDonald's stock price is undergoing a drastic valuation reset. In February 2026, fueled by strong Q4 financial results, the stock hit an all-time high, but has been declining ever since. As of the closing on May 5th (Tuesday), the stock price was $285.20, hitting a 52-week low of $283.02 at one point, the lowest level since January 2025. Compared to the February all-time high, the cumulative decline has reached 16.5%. Year-to-date, the stock has dropped by 7%, while the S&P 500 index has risen by 7% during the same period, significantly underperforming the market by more than 10 percentage points. Over the past 52 weeks, the stock has declined by about 10%, contrasting with the nearly 20% rise in the S&P 500 index during the same period. There is a disparity in institutional ratings. BTIG maintains a "buy" rating with a target price of $370; KeyBanc maintains a "overweight" rating but has reduced the target price from $354 to $345; Deutsche Bank has lowered the target price to $360; Morgan Stanley has given a "hold" rating, with a slight downward revision of the target price from $335 to $334. A more notable change comes from Rothschild Redburn, which upgraded its rating from "sell" to "neutral", with a target price set at $306, believing that after a significant valuation reset, positive trends in US customer traffic and same-store sales are emerging. In a vertical comparison, McDonald's current valuation level remains competitive in the industry. Its forecasted P/E ratio is around 22 times, much lower than Starbucks' nearly 52 times, with a dividend yield of about 2.5%, a payout ratio maintained at a sustainable level of 60.5%, and dividends have been raised continuously for 49 years, approaching the status of a "dividend king". Concerns about the impact of the Iran conflict on its business have caused McDonald's stock price to drop by about 17% since hitting a historical high of $341 in February. In the US, McDonald's has been focusing on improving value through promotional activities and plans to attract more high-income customers. The chain restaurant is also preparing to launch new beverages, including energy drinks, to attract more customers. Based on current options pricing, traders expect McDonald's (MCD) stock price to potentially rise by as much as 3% by the end of this week. If the stock price fluctuates by this magnitude from Wednesday's closing price, it could rise to nearly $294, recouping some recent losses, or fall to $275, reaching the lowest level since August 2024. Promotions of value menus and new products to increase sales: $3 menu, Big Arch burger, three-pronged beverage platform launch $3 value menu: from "buy one get one" to "what you see is what you get" On April 21, McDonald's officially launched a new McValue menu reform in the US, featuring 10 items priced below $3 nationwide, including McChicken, Double Cheeseburger, small fries, etc., while retaining the $4 breakfast combo and existing $5 to $6 combo options. Unlike the previous promotional model limited to specific categories and requiring the purchase of regular-priced items in a "buy one get one" fashion, the new mode greatly enhances price transparency and selection flexibility -- consumers no longer need to calculate promotional combinations, what they see is what they get. Wall Street has a positive view of this adjustment. UBS released a research report stating that the new menu "further consolidates McDonald's value advantage," with the core logic being economies of scale -- "we believe that in terms of providing value, competitors with larger scales have stronger pricing power and can effectively implement value strategies while ensuring profitability." Franchisee feedback is also positive. BTIG analyst Peter Saleh pointed out that franchisees generally believe that specific price anchors resonate more with consumers than the "buy one get one" model and are easier to communicate and implement. McDonald's Chief Marketing and Customer Experience Officer Alyssa Buetikofer emphasized: "Value has never been more important to our customers, and we are keenly aware of this. The company has significantly improved consumer perception of value since 2024, but customer feedback indicated a desire for more flexible and affordable options at breakfast." However, RBC analysts also issued a warning about the value menu - more value products may "erode" sales of core menu items, if the additional customer traffic brought by it is not enough to cover the downward pressure on average spending, overall benefits may be limited. Big Arch burger: After a rise in popularity, it is now fading and will be discontinued The Big Arch burger, launched on March 3, is McDonald's largest hamburger innovation in recent years. This product is positioned as the "largest burger in history," focusing on a "higher protein content, more filling" positioning, containing two beef patties, three slices of white cheddar cheese, crispy onions, lettuce, pickles, and special sauce, aiming to carve out a middle ground between "value" and "premium." What drove this product to quickly gain popularity was not the product itself, but a tasting video by CEO Chris Kempczinski. In the video, Kempczinski lightly bit the edge of the burger with his front teeth, with a blank expression throughout, referring to the burger as a "product" rather than "food," which was mocked by netizens as "the burger only suffered superficial injuries." This controversial video quickly went viral on social media, with rival Burger King seizing the opportunity to release a video of their CEO taking a big bite of a burger, exploiting the sharp contrast to garner attention. The unexpected sales conversion from this controversial video was strong. BTIG analyst Peter Saleh commented, "After Kempczinski's tasting video went viral, sales did indeed jump -- regardless of his small bites and somewhat formal way of speaking, he did sell the burger." However, the popularity quickly waned afterwards, and the product is now set to be removed from the menu, as a classic limited-time marketing operation, which once again boosted customer traffic in the short term but proved difficult to sustain as a long-term growth engine. Beverage platform: the most underestimated potential growth engine In late April, McDonald's launched a new platform featuring six specialty drinks, including refreshing fruit drinks and "dirty sodas" - the latter mixing cream, flavored syrups, and carbonated drinks, with a natural propagation gene on social media platforms like TikTok, catering to the personalized taste preferences of young consumers. Peter Saleh of BTIG commented, "Franchisees have generally positive feedback on this platform. Although some investors believe our valuation is too high, we still maintain our judgment - the beverage platform can at least drive average spending and potentially significantly increase customer acceptance of the food component." He expects this category to contribute a mid-single-digit increase in sales for the US market. From the perspective of industry competition, the beverage category's weight in fast food same-store growth is increasingly expanding. Coffee beverage chains such as Starbucks and Dutch Bros continue to dominate consumer minds, while traditional burger chains have long been in a follow-up position in beverage innovation. McDonald's concentrated launch of a beverage matrix this time aims to elevate beverages from "side items in combos" to an independent growth engine, optimizing product structure while expanding consumption scenarios beyond regular meal times. UBS analysts believe that initial market feedback indicates that the new beverages are bringing incremental consumption scenarios and driving up average spending. Pressure on revenue and expenses: soaring beef cost, compounded by geopolitical risks Wholesale beef prices have skyrocketed by 48% in a year, exacerbating the discount paradox Cost pressures are increasing. Over the past 12 months, the general wholesale price of ground beef in the US has risen by 48%, with a structural reason being that US ranchers have reduced cattle herds to the lowest level in 75 years, and short-term production expansion intentions are weak. The average retail price of unprocessed ground beef in March has already reached $6.86 per pound, second only to the historical record set in February. USDA data shows that in January 2026, the average price of food for family dining out rose by 4.0%, with a forecast of a 3.7% increase for the whole year. For McDonald's, rising costs conflict directly with low-price strategies. The $3 value menu launched by the company includes core beef products such as the Double Cheeseburger, meaning that the rising beef costs will directly erode the profit margin of these traffic-generating products. McDonald's CFO Ian Borden stated in an interview in February, "We will do our best to provide value to consumers while ensuring the profitability of the business." But currently, the profit pressure on McDonald's franchisees is quite evident, with average annual profits at Burger King US stores down by about 10%. To address this, McDonald's has adopted a "combination" strategy: on one hand, it has launched high-end products like the Big Arch to hedge against cost pressures through higher unit prices; on the other hand, it has accelerated the "Best Burger" plan to enhance the overall product experience by improving elements such as buns, onion preparation methods, and sauce ratios, without focusing solely on beef components. This plan already covers over 85 markets and is expected to extend to almost all markets by the end of 2026. The conflict between the US and Israel against Iran at the end of February has pushed up international oil prices and suppressed fast food consumption through two channels. Firstly, the rise in gasoline prices directly squeezes the disposable budgets of low-income groups in the US, who happen to be McDonald's core customers. RBC analysts explicitly stated, "McDonald's relies more on US low-income consumers, who are facing increased macroeconomic headwinds," and they predict that rising fuel costs will drag down customer traffic; Goldman Sachs has reduced its growth forecast for US consumer spending in 2026 to 4.2%. Secondly, in markets where the Middle East and Muslims make up the majority, McDonald's is seen as supporting Israel, leading to boycotts from some consumers, resulting in a 0.2% year-on-year decline in same-store sales at international franchise stores in Q1. The University of Michigan's April Consumer Confidence Index fell to its lowest level on record, with concerns deepening among the public about the economic impact of rising prices and Middle East conflicts, further suppressing fast food consumption. As a result, UBS analyst Dennis Geiger expects US same-store sales to only increase by 2.5%, below the 4% market consensus, and international direct markets are also expected to grow by 2.5%, lower than the 3.8% consensus value. Geiger pointed out that early in Q1, new products like Spicy Honey Sauce led to a good start, but later, this momentum was clearly affected by soaring oil prices and deteriorating consumer sentiment, and the sales momentum had significantly weakened, with this trend of slowdown continuing since the beginning of Q2. "Investor sentiment is weak, reflecting concerns about slowing US sales, high base in the second half of the year, and multiple worries about the impact of the Middle East conflict on Europe and global spillover." Data supports the above assessments. Placer.ai's foot traffic data shows that McDonald's Q1 store visits increased by only 0.6% year-on-year, far below the 5.3% seen in Q4, with visits to same stores declining year-on-year in January and March, only showing growth in February. Moreover, Joufrey's report also pointed out that restaurant visits in March fell by 0.5% month-on-month, mainly due to reduced spending from medium-income consumers. Looking ahead: the debate on value investing in a stress test Firstly, whether Q1 can "meet expectations" will determine the short-term direction of the stock price. The market consensus has already lowered expectations, but institutions like UBS and KeyBanc still believe that actual data may fall short of consensus. If US same-store sales growth lands around 3.5%, the revenue guidance for the first half of 2026 is likely to be more cautious. Placer.ai's foot traffic data showing only 0.6% growth implies that revenue growth relies more on increasing average spending rather than restoring customer traffic, raising questions about the quality of growth. Secondly, finding a balance between the value menu and profitability is a key test. The $3 menu aims to attract customers at a low price, but if raw material costs remain high, their dilutive effect on profit margins will gradually manifest. RBC analysts have issued a warning about "eroding" core menu sales. Whether management can maintain the promotional effect within the cost control framework will impact the full-year profit outlook. Thirdly, the path to consumer recovery depends on oil price trends and inflation control. Oil price trends are a key variable influencing the consumption willingness of low-income consumers. If substantial progress is made in US-Iran ceasefire negotiations, a fall in oil prices will release suppressed demand for fast food; should geopolitical conflicts persist, the downward trend of consumption downgrading among lower-income consumers will continue and spread to more categories. Fourthly, Wall Street remains bullish in the medium to long term, but the divide is widening. Among the 36 analysts covering the stock, the overall rating is a "moderate buy", with an average target price implying a nearly 29% upside. UBS maintains a target price of $365 unchanged, believing that the brand still has a strong position globally, with various catalysts poised to drive market share expansion and defensive traits helping to maintain profit stability in a volatile environment. However, Erste Group downgraded its rating from "buy" to "hold" in April, believing that profit growth is likely to be moderately lower than the industry average, and that a "sideways trend in the mid-term may continue." For the world's largest fast-food company, McDonald's, the upcoming first quarter 2026 financial report to be released before Thursday's market opening not only needs to answer the direct proposition of whether short-term performance meets expectations but also needs to demonstrate to the market: in the background of historical high beef costs, continued disruption from geopolitical conflicts, and downgrading of consumption by core customer groups, the company's three-pronged strategy of "value + innovation + new categories" can effectively defend market share and safeguard profitability.