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McDonald's Settles $10B Lawsuit: Should You Buy Now or Hold Steady?
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Key Takeaways
McDonald's resolves an ad discrimination suit by agreeing to advertise at market rates on Allen's platforms.
MCD is pushing value menus, tech upgrades, and targeted marketing to combat soft traffic and inflation.
McDonald's stock is down 5.2% in the past month and trading below its 50-day average amid near-term headwinds.
McDonald's Corporation (MCD - Free Report) has found itself in the spotlight again for resolving a high-profile legal dispute that could have weighed on its reputation. The company has settled a multibillion-dollar lawsuit with media mogul Byron Allen, avoiding a potentially damaging chapter.
On June 13, McDonald’s USA reached a confidential settlement with Allen’s Entertainment Studios Networks and Weather Group. Per media reports, the lawsuit, originally pegged at $10 billion, accused McDonald’s of racial discrimination in its advertising practices. While terms of the settlement were undisclosed, Allen confirmed that McDonald’s has agreed to advertise across his platforms at “market rates.”
This resolution not only helps McDonald’s avoid prolonged legal scrutiny but also aligns with its ongoing diversity and inclusion pledges. While the legal cloud has lifted, investors are now left with a bigger question: Should they buy McDonald's stock, or hold steady amid industry and macro headwinds?
Let’s delve into MCD’s growth narrative, challenges, and valuation to decode the best course of action.
McDonald’s Growth Drivers
McDonald’s continues to demonstrate the resilience of its business model, driven by strategic execution across value, innovation, and operational efficiency. The company is emphasizing value through the launch of the McValue platform in the United States, alongside Everyday Affordable Price menus and compelling meal bundles in international markets. McDonald’s is optimistic and anticipates the initiative to drive traffic in the coming periods.
Operational excellence continues to underpin the company’s performance. McDonald’s has integrated cross-functional teams under the new Global Restaurant Experience Team, enabling faster execution and scalability of innovation across core product categories: beef, chicken, and beverages. The company is also investing in technology-driven efficiencies, such as Internet of Things-enabled restaurant equipment and Google Cloud connectivity, to support more consistent and responsive operations.
Product innovation and marketing have also played a critical role in strengthening the brand’s value proposition. McDonald’s is seeing encouraging consumer response to recent initiatives such as the Minecraft Movie campaign and the rollout of McCrispy Chicken Strips in the United States. These promotions are designed to work in tandem with its value offerings, balancing guest traffic growth with full-margin menu items.
As McDonald’s sees growing competition from industry players including BJ's Restaurants, Inc. (BJRI - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) and CAVA Group, Inc. (CAVA - Free Report) , its segmented focus through dedicated category teams provides a strategic advantage in scaling high-performing verticals, particularly in beverages. The company plans to expand this area by learning from its CosMc’s concept.
McDonald’s Earnings Outlook Reflects Moderate Growth
Over the past 60 days, the Zacks Consensus Estimate for McDonald’s 2025 earnings per share (EPS) has been revised upward, increasing from $12.22 to $12.25 over the past 60 days. This upward trend reflects strong analyst confidence in the stock’s near-term prospects.
Image Source: Zacks Investment Research
The company is likely to report strong earnings, with projections indicating a 4.5% jump in 2025. Conversely, industry players like BJ's Restaurants, Chipotle Mexican Grill and CAVA are likely to witness growth of 29.9%, 8% and 38.1% year over year, respectively, in 2025 earnings.
Macro Headwinds Cloud MCD’s Near-Term Visibility
McDonald’s, while fundamentally strong, is contending with several structural headwinds that could weigh on its near-term to medium-term performance. Persistent inflation and economic uncertainty — especially in mature markets like the United States and Europe — have led to declining traffic, particularly among lower and middle-income consumers. In the first quarter of 2025, U.S. same-store sales dropped 3.6%, raising alarms about weakening demand and pricing sensitivity.
The company is also grappling with cost inflation, notably in beef, labor, and packaging. In Europe, high single-digit inflation has put further pressure on company-operated margins. While the McValue platform is aimed at offsetting these pressures, maintaining profitability while offering deep discounts is proving to be a delicate balancing act.
Furthermore, analyst downgrades and growing concerns over the potential long-term impact of GLP-1 weight-loss drugs on consumer eating behavior are weighing on sentiment across the fast-food sector.
MCD Stock Performance & Valuation
McDonald's shares have declined 6% in the past month, underperforming the Zacks Retail – Restaurants industry’s fall of 1.9% and the broader Zacks Retail-Wholesale sector decline of 3.3%. For context, BJ’s Restaurants reported growth of 1%, while Chipotle and CAVA saw declines of 3.9% and 17.2%, respectively, during the same period.
MCD Stock One Month Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, McDonald’s stock appears undervalued, trading at a forward 12-month P/E of 23.81X, below the industry average of 25.91X.
Image Source: Zacks Investment Research
However, technical indicators suggest caution. MCD is currently trading below its 50-day moving average, which may reflect weak investor momentum and bearish sentiment.
MCD Stock Trades Below 50-Day Moving Average
Image Source: Zacks Investment Research
McDonald’s Stock Investment Verdict: Hold for Now
McDonald’s long-term growth prospects remain supported by its resilient global brand, strategic focus on value platforms like McValue, and continued investment in digital innovation and operational efficiencies. The company's efforts to streamline execution through the Global Restaurant Experience Team, expand categories such as chicken and beverages, and deliver targeted marketing campaigns position it well to capture incremental market share over time.
However, headwinds including persistent inflation, soft traffic trends among key consumer cohorts, and execution risks tied to category expansion present near-term challenges. Margin pressure from elevated labor and commodity costs — particularly in Europe — alongside cautious analyst sentiment and sluggish share price performance, temper the stock’s immediate appeal. While McDonald’s fundamentals remain intact, the current macro backdrop warrants a measured approach.
Given the uncertainty surrounding near-term growth and profitability, holding onto this Zacks Rank #3 (Hold) stock may be a prudent strategy for existing shareholders. Prospective investors may consider waiting for improved visibility on traffic stabilization and margin expansion before initiating new positions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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McDonald's Settles $10B Lawsuit: Should You Buy Now or Hold Steady?
Key Takeaways
McDonald's Corporation (MCD - Free Report) has found itself in the spotlight again for resolving a high-profile legal dispute that could have weighed on its reputation. The company has settled a multibillion-dollar lawsuit with media mogul Byron Allen, avoiding a potentially damaging chapter.
On June 13, McDonald’s USA reached a confidential settlement with Allen’s Entertainment Studios Networks and Weather Group. Per media reports, the lawsuit, originally pegged at $10 billion, accused McDonald’s of racial discrimination in its advertising practices. While terms of the settlement were undisclosed, Allen confirmed that McDonald’s has agreed to advertise across his platforms at “market rates.”
This resolution not only helps McDonald’s avoid prolonged legal scrutiny but also aligns with its ongoing diversity and inclusion pledges. While the legal cloud has lifted, investors are now left with a bigger question: Should they buy McDonald's stock, or hold steady amid industry and macro headwinds?
Let’s delve into MCD’s growth narrative, challenges, and valuation to decode the best course of action.
McDonald’s Growth Drivers
McDonald’s continues to demonstrate the resilience of its business model, driven by strategic execution across value, innovation, and operational efficiency. The company is emphasizing value through the launch of the McValue platform in the United States, alongside Everyday Affordable Price menus and compelling meal bundles in international markets. McDonald’s is optimistic and anticipates the initiative to drive traffic in the coming periods.
Operational excellence continues to underpin the company’s performance. McDonald’s has integrated cross-functional teams under the new Global Restaurant Experience Team, enabling faster execution and scalability of innovation across core product categories: beef, chicken, and beverages. The company is also investing in technology-driven efficiencies, such as Internet of Things-enabled restaurant equipment and Google Cloud connectivity, to support more consistent and responsive operations.
Product innovation and marketing have also played a critical role in strengthening the brand’s value proposition. McDonald’s is seeing encouraging consumer response to recent initiatives such as the Minecraft Movie campaign and the rollout of McCrispy Chicken Strips in the United States. These promotions are designed to work in tandem with its value offerings, balancing guest traffic growth with full-margin menu items.
As McDonald’s sees growing competition from industry players including BJ's Restaurants, Inc. (BJRI - Free Report) , Chipotle Mexican Grill, Inc. (CMG - Free Report) and CAVA Group, Inc. (CAVA - Free Report) , its segmented focus through dedicated category teams provides a strategic advantage in scaling high-performing verticals, particularly in beverages. The company plans to expand this area by learning from its CosMc’s concept.
McDonald’s Earnings Outlook Reflects Moderate Growth
Over the past 60 days, the Zacks Consensus Estimate for McDonald’s 2025 earnings per share (EPS) has been revised upward, increasing from $12.22 to $12.25 over the past 60 days. This upward trend reflects strong analyst confidence in the stock’s near-term prospects.
Image Source: Zacks Investment Research
The company is likely to report strong earnings, with projections indicating a 4.5% jump in 2025. Conversely, industry players like BJ's Restaurants, Chipotle Mexican Grill and CAVA are likely to witness growth of 29.9%, 8% and 38.1% year over year, respectively, in 2025 earnings.
Macro Headwinds Cloud MCD’s Near-Term Visibility
McDonald’s, while fundamentally strong, is contending with several structural headwinds that could weigh on its near-term to medium-term performance. Persistent inflation and economic uncertainty — especially in mature markets like the United States and Europe — have led to declining traffic, particularly among lower and middle-income consumers. In the first quarter of 2025, U.S. same-store sales dropped 3.6%, raising alarms about weakening demand and pricing sensitivity.
The company is also grappling with cost inflation, notably in beef, labor, and packaging. In Europe, high single-digit inflation has put further pressure on company-operated margins. While the McValue platform is aimed at offsetting these pressures, maintaining profitability while offering deep discounts is proving to be a delicate balancing act.
Furthermore, analyst downgrades and growing concerns over the potential long-term impact of GLP-1 weight-loss drugs on consumer eating behavior are weighing on sentiment across the fast-food sector.
MCD Stock Performance & Valuation
McDonald's shares have declined 6% in the past month, underperforming the Zacks Retail – Restaurants industry’s fall of 1.9% and the broader Zacks Retail-Wholesale sector decline of 3.3%. For context, BJ’s Restaurants reported growth of 1%, while Chipotle and CAVA saw declines of 3.9% and 17.2%, respectively, during the same period.
MCD Stock One Month Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, McDonald’s stock appears undervalued, trading at a forward 12-month P/E of 23.81X, below the industry average of 25.91X.
Image Source: Zacks Investment Research
However, technical indicators suggest caution. MCD is currently trading below its 50-day moving average, which may reflect weak investor momentum and bearish sentiment.
MCD Stock Trades Below 50-Day Moving Average
Image Source: Zacks Investment Research
McDonald’s Stock Investment Verdict: Hold for Now
McDonald’s long-term growth prospects remain supported by its resilient global brand, strategic focus on value platforms like McValue, and continued investment in digital innovation and operational efficiencies. The company's efforts to streamline execution through the Global Restaurant Experience Team, expand categories such as chicken and beverages, and deliver targeted marketing campaigns position it well to capture incremental market share over time.
However, headwinds including persistent inflation, soft traffic trends among key consumer cohorts, and execution risks tied to category expansion present near-term challenges. Margin pressure from elevated labor and commodity costs — particularly in Europe — alongside cautious analyst sentiment and sluggish share price performance, temper the stock’s immediate appeal. While McDonald’s fundamentals remain intact, the current macro backdrop warrants a measured approach.
Given the uncertainty surrounding near-term growth and profitability, holding onto this Zacks Rank #3 (Hold) stock may be a prudent strategy for existing shareholders. Prospective investors may consider waiting for improved visibility on traffic stabilization and margin expansion before initiating new positions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.