McDonald’s (MCD) shares have fallen 7.4% year-to-date, largely due to ongoing bearish sentiment sustained by declining comparable sales, which even dipped into negative territory in the company’s recent second-quarter results. This, in turn, is largely due to broader industry trends and factors beyond McDonald’s control. Despite this, the company is on track to deliver record sales and near-record profits this year, all at an attractive valuation. As such, I am bullish on MCD stock and believe it is a compelling buy at its current levels.

Sales growth seems weak, but there is more to the story

At first glance, McDonald’s second-quarter revenue growth appeared relatively modest. The company’s revenues remained steady at $6.5 billion, showing no year-over-year increase, continuing a trend of slowing growth seen in recent quarters. Although McDonald’s ended the quarter with 42,406 locations — an increase of 1,605 year-over-year contributing to revenue — that expansion was offset by a 1% decline in global comparable store sales. This decline was seen in all major markets, including the United States, Australia, Canada and Germany.

But that’s not all: McDonald’s decline wasn’t really the result of any significant operational missteps. Rather, it was influenced by various external factors beyond the company’s control. The negative comparable sales were primarily due to a combination of macroeconomic pressures and geopolitical tensions affecting the entire quick service restaurant (QSR) industry.

For example, ongoing inflationary pressures have been a major challenge. In many of McDonald’s core markets, inflation rates have risen by 20 to 40 percent in recent years, weighing on consumer purchasing power and changing eating habits. This surge in inflation forced consumers to rethink their spending and opt for lower-priced food options. As a result, McDonald’s has seen less customer traffic and lower revenue per visit.

In addition, geopolitical tensions, particularly the ongoing conflict in the Middle East, have exacerbated these challenges. Instability in these regions has led to lower consumer spending and less customer traffic at McDonald’s restaurants there.

Profits weakened but are expected to recover

In addition to McDonald’s somewhat disappointing revenue numbers, earnings also weakened. This decline was largely due to inflationary pressures driving up costs, which combined with falling in-store sales led to shrinking restaurant-level margins. The company reported adjusted earnings per share (EPS) of $2.97, down about 5% year over year in constant currencies. This decline was also impacted by a higher effective tax rate and higher interest expense, which rose 13% to $373 million.

Nevertheless, I am convinced that McDonald’s overall results and thus its earnings will recover quickly because the company is actively addressing the current challenges. To address the current price sensitivity of consumers, McDonald’s has, for example, introduced initiatives such as the $5 meal plan in the US, which has shown positive results and is now being expanded nationwide.

In addition, McDonald’s is revitalizing its menu with exciting new dishes like the Big Arch Burger to attract more customers and increase footfall in its restaurants. The expansion of its loyalty program, which now has 166 million members, also supports its goal of increasing customer loyalty and market share.

In addition to easing inflation, customer traffic is also expected to increase in the second half of the year. Wall Street is forecasting full-year revenue of about $26.1 billion, up 2.3% year-on-year and implying a rebound in revenue growth for the second half of the year. This estimate also suggests that the company is on track to set a new revenue record despite the current challenges and prevailing market pessimism.

In addition, adjusted earnings per share are expected to be $11.81, down just 1.1% from last year’s record of $11.94. Finally, the market is expecting solid single-digit growth in both revenue and earnings per share for fiscal years 2025 and 2026, suggesting a steady recovery.

McDonald’s valuation is attractive today

After last year’s share price decline, McDonald’s appears to be trading at a fairly attractive valuation. Based on Wall Street’s adjusted earnings estimate of $11.81, McDonald’s trades at a P/E ratio of about 23, which I find quite compelling given its robust brand value and impending rebound in revenue and earnings growth.

Historically, McDonald’s stock has been valued at above-average price-to-earnings ratios. I believe investor confidence is likely to recover as revenue and earnings per share begin to grow again. This will likely lead to potential returns driven by both the company’s underlying growth and the possibility of P/E expansion.

Is MCD stock a buy according to analysts?

Despite Wall Street’s recent skepticism about the stock, McDonald’s maintains its consensus rating of “Moderate Buy.” This rating is based on 19 buy recommendations and eight hold recommendations over the past three months. The average price target for MCD stock is $302.13, suggesting an upside potential of 11.4%.

View more MCD analyst ratings

If you’re wondering which analyst to follow when buying or selling MCD stock, your best bet is Evercore ISI’s David Palmer. Over the past year, he has delivered an impressive 14.52% average return per rating, with a remarkable 86% success rate. Click on the image below to read more about his insights.