MCD - McDonald's: Peak Performance Thesis Sustained

2024-04-19 11:05:19 ET

Summary

• McDonald's stock has had a 3.54% total return since our last call to sell, underperforming the S&P 500.
• The company's high leverage and inflation are pressuring its cash flow.
• Increasing labor costs and shift to automation will pressure margin that increasing prices is not a viable option.

Investment Thesis

Review

Last year in March, we initiated coverage on McDonald's Corporation (MCD), giving it a sell rating of $263.73. The report titled "McDonald's: Higher Leverage, Inflation Indicate A Near-Term Peak". We predicted that the company's cash flow would be impacted by the receding restaurant traffic indicated by peaked restaurant inflation due to the normalization of consumer spending at fast-food dining. Combined with its high leverage, near-term peak performance was expected....

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