McDonald's

McDonald's delivered 4.3% global unit growth and a 1.3% bump in comparable sales in the second quarter. Meanwhile, 0.8% US comparable sales growth trailed the pack due to traffic losses. Global company-owned restaurant margin contracted 20 basis points to 15.3%.

Why it matters: Amid broader macro uncertainty and intense competition, wallet-stretched consumers shunned McDonald's value proposition, which was crimped by lackluster US franchisee deal participation and less loyalty discounting. Slow traffic and elevated costs dented unit-level profits. Against a tough backdrop, we believe diners gravitate toward predictable value and compelling innovation. While new beverages likely raised average checks, we suspect the value lineup has been overly altered in the last year, and some franchisees have raised prices to stabilize their cash flow. To staunch the bleeding, management will prudently restore loyalty engagement, refocus diluted marketing, and reengage franchisees, using weak results as proof points against higher pricing. Still, these efforts will take time to filter through the system—domestic trends were negative in July.

The bottom line: We plan to trim our $295 fair value estimate for wide-moat McDonald's by a low-single-digit rate. We see shares as modestly undervalued after a 1% rise on Aug. 4. Management pushed its 50,000-global-unit target to 2028 from 2027, in line with our expectations. Even so, we plan to cut our 3.7% average annual store growth forecast over the next decade as we expect franchisees to redirect capital toward remodels while the firm explores refranchising. We still expect 2% global comp growth in 2026, but think McDonald's can hit 3.5% longer-term, which the market may underestimate.

Coming up: We support management's commitment to bolstering hospitality through firmwide employee training in 2026. We look forward to hearing more on plans to deploy technology and modernize the footprint at its Sept. 23 investor day.

We’ve lowered our fair value estimate for McDonald’s to $295 from $300, primarily due to a slightly more conservative five-year unit growth forecast of 4.1%, down from 4.4%. We expect the firm to adopt a more disciplined approach to unit expansion following a period of outsize growth, in order to preserve strong unit-level economics and refocus on delivering remodels amid broader pressures that we suspect could impact returns on new units. We've also nudged down our fiscal 2026 global comparable sales estimate to 2.3% from 3.9% previously, reflecting a more challenging global consumer environment than we had anticipated. Our valuation implies a 2026 enterprise value/EBITDA multiple of 16 times.

Over the next decade, we forecast systemwide sales to grow 6% annually, driven by 3.7% unit growth and 3.5% comparable sales growth. Our expectation is propelled by outsize unit expansion in the international developmental segment, where we forecast 8.9% system sales growth, supported by 6.1% unit growth as McDonald’s master franchisees build out underpenetrated markets, particularly in Asia (including China, India, and Indonesia). By contrast, we anticipate more moderate system sales growth of 4% and 5.3% in the mature US and international operated markets, respectively, with a greater contribution from comparable sales (3.4% and 3.4% annually in the US and IOM, respectfully) and modestly higher IOM unit growth (1.7% versus roughly 0.6% in the US). We surmise unit growth in these segments will come from expansion outside the firm’s urban core markets, while targeting communities where populations have risen. In support of our comparable sales growth assumptions, we posit McDonald’s will continue to resonate with consumers through persistent menu development, marketing and promotion, and improved convenience and engagement through digital channels and loyalty, enabling the firm to drive traffic and raise prices to more than offset input and labor inflation.

We also forecast McDonald’s consolidated operating margin to expand to 52% in 2035 from 46.1% in 2025, supported by a growing mix of higher-margin franchise revenue (rising to 66% of total revenue by 2035 from 62% in 2025), where the firm collects royalties without bearing the cost of restaurant expenses, requiring less in the way of selling, general, and administrative expenses, which we see falling to 10.4% of revenue in 2035 from 11.3% in 2024. Additionally, we expect restaurant margins to rise to 19.1% from 14.7% in 2025, returning to prepandemic levels by 2029 as promotions normalize, input cost inflation remains moderate, and stronger comparable sales improve fixed cost leverage. We also see restaurant-level profitability benefiting from technology initiatives, which should enhance store-level operational efficiency over time.

We assign McDonald’s a wide Morningstar Economic Moat Rating, underpinned by its strong intangible assets and a cost advantage. McDonald’s sits at the pinnacle of restaurant brand recognition and reach, leading the global player within the foodservice industry with over $139 billion in systemwide sales and a 4.2% share. The fact that this share is more than twice that of wide-moat Yum Brands (2%) and around 3 times narrow-moat Restaurant Brands (1.4%) is more impressive when considering that each is a multibrand operator. Ultimately, the firm has held its share position despite operating in an intensely competitive landscape defined by low barriers to entry and minimal switching costs. We believe evidence of McDonald’s strong brand is corroborated by pricing power, attractive unit economics, and successful international replication. Meanwhile, we suspect that the world’s largest restaurant operator captures procurement benefits and leverages its scale to spread technology and marketing investments across its sales base. As such, McDonald’s has chalked up returns on invested capital, including goodwill, of 22%, outpacing our 7% weighted average cost of capital over the past decade. Indeed, we surmise the firm should continue to outearn its cost of capital over a 20-year horizon, supporting our wide moat rating.

We believe McDonald’s brand and its iconic Golden Arches symbolize speed, convenience, and value that consumers trust across its 45,000 locations in over 100 countries. Over a multidecade horizon, McDonald’s has consistently reinvested, irrespective of the economic cycle, to ensure it meets consumers’ changing tastes, maximizes convenience, standardizes experiences, and touts its suite of recognizable intellectual property. Coupled with its sprawling footprint, we believe this compels 80% of the population in its largest markets to visit at least once a year (according to management), a testament to its brand recognition. We surmise this has enabled it to withstand competition from other fast-food players, specialized burger or chicken operators, and more health-conscious limited-service concepts that also compete on price, convenience, and, ultimately, share of customers’ stomachs.

Digging deeper, we suspect McDonald’s has pricing power backed by its strong brand, as evidenced by comparable sales growth (up 4.4% on average over the past decade, comfortably ahead of our estimate of 3.9% aggregate annual inflation in food and labor costs). This has also been seen in US average check size, which increased 4.5% on average from 2015 to 2019. Although this is no longer reported, McDonald’s 5.2% annual comparable sales increase since 2020 alongside market share gains illustrate this pricing power persists (as menu prices likely sit around 40% above 2019). Ultimately, we think these price hikes have been facilitated by McDonald’s introduction of on-trend menu innovations that haven’t come at the expense of convenience and perceived value. The firm has achieved this through the evolution of its 17 individual billion-dollar menu items (65% of sales), such as the Big Mac and Chicken McNuggets, which carry higher relative price points supported by quality enhancements and flavor extensions over time. Meanwhile, the burger-focused firm has evolved with consumers by expanding its lineup of chicken fare, which generated 2023 sales commensurate with beef at about $25 billion, according to management. Moreover, we posit the firm’s outsize marketing lever serves as a tool to tout its expanded offerings, bolstering excitement around the brand, driving traffic, and keeping consumers coming back.

McDonald’s ability to drive comparable sales growth supports strong unit economics, which we expect to continue to attract franchisees and aid in its goal of nearing 50,000 restaurants by 2027, up from around 45,000 globally in 2025. Put together, we believe this fuels further unit expansion and demonstrates the brand’s prowess. We point to higher average unit volumes, which allow McDonald’s to spread out unit-level costs more effectively. Indeed, McDonald’s US average unit volumes rest around $4 million, handily outpacing many category peers, including Wendy’s ($2 million), Burger King ($1.6 million), and Sonic ($1.6 million). Aided by a larger sales base, we estimate that McDonald’s franchisees chalk up roughly 20% cash-on-cash returns, exceeding the mid-single- to mid-double-digit range we estimate for the aforementioned peers.

In our view, McDonald’s broad international footprint illustrates that the strength of its brand transcends borders by adapting to local tastes and preferences. Indeed, McDonald’s leads the pack globally with over 31,500 international stores (up from 25,500 in 2020), surpassing KFC (30,500) and Starbucks (23,000). This has manifested in a leading share position across limited-service restaurant markets. According to Euromonitor, McDonald’s ranks number one in brand market share in Australasia (17.9% share), Eastern Europe (18.5%), Western Europe (17.4%), Latin America (6.5%), and Asia-Pacific (6.3%), while narrowly trailing KFC’s 8.7% share in the Middle East and Africa with a 6.2% share. We surmise the brand’s international strength is underpinned by a track record for effective localized innovation, propelling 6% annualized comparable international sales growth over the last seven years.

We contend McDonald’s competitive edge extends beyond its brand clout to a cost advantage. With nearly $139 billion in systemwide sales, well ahead of wide-moat Yum Brands ($68 billion) and narrow-moat Restaurant Brands ($46 billion), we posit that the firm wields bargaining clout over suppliers, as well as benefits from scale in advertising and technology investments.

In terms of procurement, McDonald’s directs more than $50 billion annually toward purchases of food, packaging, and services. In turn, we surmise this translates into volume discounts and favorable pricing from suppliers. Moreover, the firm’s vast footprint, along with its high average unit volumes, results in larger case volumes per unit, thereby lowering last-mile delivery costs on a per-store basis. Relative to smaller chains and independents, we contend that McDonald’s drives superior procurement efficiencies, enabling the firm to deliver greater value to customers and franchisees, while maintaining greater pricing flexibility even when operating conditions sour.

Further, we believe McDonald’s maximizes its return on marketing by spreading the cost across its sales base, given it operates a uniform brand globally. While McDonald’s doesn’t disclose a total advertising figure inclusive of franchisee contributions, applying a 4% marketing royalty (the baseline rate in the US) to $55 billion in US sales implies roughly $2.2 billion at the firm’s disposal in just its domestic market. We posit this stands as the largest restaurant advertising fund, besting the $1.8 billion in advertising revenue collected by the second-largest operator, Yum Brands. These bulk advertisement purchases should yield discounts, while global campaigns, such as the Olympics, stand to generate higher returns. McDonald’s also effectively leverages its advantage to promote its own intellectual property, such as nostalgic Grimace Shakes, and forge big-name partnerships for Happy Meals, like the Minecraft movie collaboration.

Lastly, we see McDonald’s ability to deploy large-scale technology initiatives across its network as key to solidifying its cost edge. In this regard, the firm equipped stores with demand-forecasting technology, while geofencing technology monitors customer arrivals, which reduces wait times by 50% in restaurants that use the technology, thereby improving both the experience and efficiency. Furthermore, in some of its largest markets, AI-powered scales are used to verify the accuracy of delivery orders, bolstering the brand's reputation on third-party apps. In China, RGM Boss is an AI-enabled business operating system that saves management teams two hours per day and has delivered a 30-basis-point improvement in restaurant margins by automating administrative tasks. Most notably, we highlight the prowess of McDonald’s loyalty platform, which boasts 46 million US 90-day active members, surpassing the 36 million of wide-moat Starbucks and the 21 million of wide-moat Chipotle (12-month active). We contend that the ability to leverage these insights and engage consumers directly gives the firm the power to reap insights, personalize offers, and drive traffic at scale. The firm expects to top the 250-million-member mark globally in 2027 from 210 million at the end of 2025, propelled by the flywheel of its in-store digital investments and geographic membership expansion. Ultimately, we believe McDonald’s investments generate higher returns than those of smaller peers while serving as a critical engine to improve customer experience through convenience and value, thereby preserving its brand clout.

McDonald’s is well-positioned to capture market share, despite the intensely competitive backdrop, thanks to its sharp value focus and ability to invest in traffic-driving promotions and menu innovation.

Efforts to reduce tech fragmentation, modernize stores, and centralize data—combined with ongoing investments in automation, AI, and geofencing—should lead to a consistent customer experience while bolstering efficiency.

Expanding global active loyalty memberships to 250 million by 2027 from 210 million in 2025 should help bolster personalization and lift frequency.

Rising beef costs and further minimum wage hikes could strain franchisees, limiting their appetite to deepen promotion in a weaker macroenvironment and possibly curtailing development prospects.

International competition is intensifying as scaled rivals expand abroad. This could limit long-term comparable sales prospects or unit growth.

Evolving consumer health trends, including the rise in GLP-1 use, may steer traffic toward healthier concepts, disrupting McDonald’s long-term growth trajectory.