Strong Risk-Reward Ratio for McDonald's After Pullback

Overview

UBS issues earnings outlook commentary on McDonald's, maintaining Buy rating and $365 target price. The report suggests that due to macroeconomic pressure and a high base effect, McDonald's Q1 key metrics may fall below market expectations, and sales momentum in Q2 may also slow. However, UBS emphasizes that McDonald's brand has a good global positioning, and through value platform upgrades, menu innovation (such as new beverage platforms), and marketing activities, it is expected to continue driving share growth. After the current stock pullback, the risk-reward ratio is attractive, and the company's defensive attributes can provide earnings stability in volatile environments.

Core views

Short-term pressure but medium-term logic unchanged. UBS expects McDonald's Q1 core metrics may be below market consensus; investors currently expect US Same-Store Sales of 3-3.5% (below market consensus of 4.0%), and International Operated Markets (IOM) expectation around 3-3.5% (below consensus of 3.8%). Investor sentiment is negative, mainly reflecting concerns over slowing US sales year-to-date in Q2, high base pressure in H2, and impacts of the Middle East conflict on Europe and globally. However, UBS believes these short-term pressures are already priced in, and the brand continues to take important measures to reinforce trends. US Market: Growth drivers remain. UBS model predicts US Same-Store Sales growth of 3.5% in Q1, below 4.0% market consensus. Although early quarter performance was solid driven by products like Hot Honey Sauce, the trend slowed later due to severe winter weather (dragging about 100 basis points), rising gas prices, and weakened consumer confidence. April data also showed deceleration due to last year's high base from the Minecraft collaboration. However, updated McValue Platform ($3 meals and $4 breakfast deals), new beverage platform, and marketing campaigns are expected to support positive sales momentum for the rest of the year. UBS forecasts 2026 full-year US Same-Store Sales growth of 2.3%. International Operated Markets (IOM): Mixed performance but with highlights. Forecast IOM Same-Store Sales growth of 3.5% in Q1, with trends mixed dragged by macro background. Germany and Australia expected to continue gaining market share with solid value propositions and marketing campaigns, and the UK turnaround plan is also expected to bring improvements. However, pressure from rising European energy costs needs attention. Valuation Level: UBS believes McDonald's risk-reward ratio is attractive after the current pullback. Improvement in US sales trends and global share growth support potential upside. Preliminary results from the new beverage platform show they can generate incremental consumption scenarios and increase ticket size, becoming a solid driver contributing to Same-Store Sales. Franchisee surveys show recent pressure but maintain confidence in the full-year outlook.

Analysis framework

UBS analysis unfolds along three main lines: bottom-up Same-Store Sales breakdown, catalyst and risk factor assessment, and valuation framework construction. Firstly, by breaking down US and International Operated Markets separately, combined with external consumption data (such as Second Measure), weather impact (winter storms caused a drag of about 100 basis points), high base effect (last year's Minecraft collaboration), and product calendar (McValue Platform, new beverages, limited-time marketing campaigns), gradually deriving the expected path for Same-Store Sales per quarter. Secondly, by cross-validating the authenticity of short-term pressure through franchisee research and investor sentiment checks, while identifying certainty signals for medium-term improvement (such as incremental scenarios brought by the new beverage platform). Finally, valuation adopts EV/EBITDA method, setting a $365 target price based on EBITDA forecast for the next 12 months. Combining forecasted stock price appreciation of 27.3% and dividend yield of 2.6%, calculates forecasted total return of 30.0%, significantly higher than the 8.9% market return assumption (MRA), thus justifying the Buy rating.

Methodology notes

• Valuation MethodEV/EBITDA valuation

  EV/EBITDA Valuation Method

  Enterprise Value (EV) divided by Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). EV includes market cap and net debt, EBITDA excludes capital structure and tax rate impacts. UBS uses this method to set target prices based on next 12-month forecasts, effectively reflecting the core operating profitability of multinational restaurant enterprises.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Same-Store Sales (SSS) Breakdown Analysis

  Same-Store Sales refers to the change in sales revenue of stores open for a certain period of time, which is a core indicator for measuring organic growth in the catering industry. UBS further breaks it down into weather impact, high base effect, product innovation (such as new menus), and macro pressure factors, to judge the real momentum and sustainability of growth.

• Event Game and Behavioral FinanceExpectation Gap / Expectation Management

  Difference Between Market Expectations and Consensus

  The report compares the gap between UBS's own forecast and market consensus (such as US Same-Store Sales UBS forecast 3.5% vs consensus 4.0%) and analyzes the negative tendency of investor sentiment. This expectation gap analysis helps judge whether current stock prices have fully or even over-reflected bad news.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• McDonald's (MCD.US)

  Report core bullish target, benefiting from strong global brand positioning, value platform upgrade, and defensive attributes

  Strengths

  Strong global brand positioning; Value proposition and menu innovation (such as new beverage platform) expected to drive share growth; Defensive features provide earnings stability

  Weaknesses

  Short-term sales momentum slowdown; Facing macro pressure and high base challenges

  Comparison

  -

  Risks

  Macroeconomic deterioration affecting consumer spending; Food safety incidents; Intensified competition; Franchise model related risks; Commodity and labor cost inflation

Key data

• Rating & Target PriceBuy | $365.0012-month Rating & Target Price
• Current Stock Price$286.64Price as of May 1, 2026
• Implied Upside27.3%Forecasted Price Appreciation Space
• Forecast Dividend Yield2.6%Expected Dividend Return
• Forecast Total Stock Return30.0%Includes Price Appreciation and Dividends
• US Q1 Same-Store Sales Forecast3.5%Consensus Expectation is 4.0%, UBS Below Consensus
• IOM Q1 Same-Store Sales Forecast3.5%Consensus Expectation is 3.8%
• 2026 Full Year US Same-Store Sales Forecast2.3%UBS Model Forecast Value
• 2026 EPS Forecast (UBS)$13.10Market Consensus is $13.18

Impact & implications

UBS believes that despite short-term macro pressure and slowing sales, the current stock pullback has created an attractive risk-reward ratio. The company is expected to continue winning market share globally and strengthen US sales growth through value propositions, marketing, and menu innovation (especially new beverage platforms). In the context of still volatile macro environment, McDonald's defensive characteristics can provide earnings stability, which supports mid-term stock price appreciation.

Risks

• Deterioration of macroeconomic factors (such as rising unemployment, slow wage growth, high oil prices, decline in real estate market) may negatively impact consumer spending
• Food safety incidents involving McDonald's or peers
• Intensified industry competition
• Franchise business model related risks
• Significant inflation in commodity or labor costs
• Changes in consumer dining habits trends
• Impact of severe weather conditions on sales
• International business related risks and exchange rate risks

What to watch

• Sales momentum changes in Q1 and Q2
• Consumer insights and macro impact
• Value perception and effectiveness of McValue 2.0 platform
• Progress of menu innovation (especially beverages) and marketing plans
• Performance in key international markets (especially Europe affected by rising energy costs and spillover from Middle East conflict)