McDonald's

McDonald's is the largest restaurant company in the world, with about 46,000 restaurants in more than 100 countries. Franchisees run about 95% of them. McDonald's makes most of its money from rent and royalties, which are a percentage of each restaurant's sales. It owns about 56% of the land and 80% of the buildings of the restaurants in its main markets, so rent is its largest source of profit.

In 2025, franchised restaurants gave about 90% of its restaurant margin, and free cash flow was about $7.2 billion. It reports three segments: the US, International Operated Markets (such as Germany, the UK, and Australia), and International Developmental Licensed Markets (such as Japan and China), where partners run the business. Its loyalty program had about 220 million active members in Q2 2026. McDonald's has raised its dividend every year for 50 years.

McDonald's trades at a discount because fewer customers visit its US restaurants, and the plan to fix this costs money now. In Q2 2026, US same-store sales grew only 0.8%, from higher prices, while the number of guests fell. Third-party data (Placer.ai) showed US visits down 4.5%, against 3.0% for the industry. Lower-income customers, who are a large part of McDonald's visitors, cut back the most.

In August 2026, McDonald's moved its 50,000-restaurant goal from 2027 to 2028. At its Investor Day on September 23, 2026, it promised about $8.5 billion of rent relief and capital support to franchisees through 2036, and the CFO said that US same-store sales will be slightly negative in Q3 2026. Investors see cash that goes out now for benefits that come over ten years. The stock had its worst day since April 2025, and it fell about 12% in September 2026.

Higher interest rates add a second pressure. The 10-year Treasury yield rose above 5% in September 2026, and this lowers the price investors pay for steady rent and royalties. For the gap to close, US guest counts must stop falling and turn positive in 2027, the new value menu (Extra Value Meals) must bring customers back without cutting franchisee profit, and McDonald's must keep its investment-grade credit rating while it pays the dividend and funds the franchisee plan. The first test is the Q3 2026 report, expected on about November 4, 2026, and above all the US guest counts and what management says about US traffic in October.

If traffic recovers, the discount can close over the next four to six quarters. The main risk is that the consumer stays weak and the $8.5 billion goes to a franchise system that sells less.

1. Nov 4, 2026 · est.Pending

   Q3 2026 results: US guest counts and same-store salesUS same-store sales near zero or better, positive US sales in September as the CFO expected, and guest counts that stop falling in October pass; a further fall in US traffic or a cut to the outlook fails.
2. Feb 2027 · est.Pending

   Full-year 2026 results and 2027 outlookA 2027 outlook with positive US guest counts and free cash flow conversion in the mid-80% range passes; lower guidance or higher debt to fund the franchisee plan fails.
3. May 2027 · est.Pending

   Q1 2027 results: value menu and franchisee profitPositive US guest counts with stable franchisee cash flow pass; traffic that still falls after the Extra Value Meals push fails.

Every passed and failed checkpoint across all picks

McDonald's shows negative shareholders' equity: a deficit of $1.0 billion at June 30, 2026. This is not a sign of distress, because the company owns much of the land and buildings that franchisees rent, carries this property at old cost, and gets a steady cash flow from rent and royalties. Read more

• Fewer customers visit McDonald's US restaurants. US guest counts fell in Q2 2026. At Investor Day on September 23, 2026, the CFO said that US same-store sales will be slightly negative in Q3 2026. Placer.ai data shows that about 36% of McDonald's US visitors come from areas with a median household income below $50,000, and these customers cut back the most. Competitors also push low-price deals. If traffic does not recover, rent and royalties grow slowly.
• The $8.5 billion franchisee plan costs money now, and its benefits come over about ten years. Rent relief lowers McDonald's highest-margin income. BMO estimates that it cuts earnings per share by about 1% in 2027 and 2028, and by 2% to 3% by 2030. Only 60% to 65% of franchisees used the new value prices in Q2 2026, so franchisee support is not certain.
• Higher interest rates lower the price investors pay for steady rent and royalties. The 10-year Treasury yield rose above 5% in September 2026, and the stock fell about 12% in September 2026. The direct cost is small, because about 97% of McDonald's debt has a fixed rate, at an average of about 4.0%.
• McDonald's had about $39.9 billion of debt at June 30, 2026, about 2.6 times EBITDA, and its shareholders' equity is negative because of past buybacks. In 2025, dividends and buybacks used about all of its free cash flow. The franchisee plan leaves less cash for buybacks. Its credit ratings are BBB+ at S&P and Baa1 at Moody's.
• Sales outside the US are slowing too. Same-store sales grew only 1.5% in International Operated Markets and 1.9% in International Developmental Licensed Markets in Q2 2026. China and the Middle East add political risk, and a strong US dollar lowers the value of foreign sales.
• Weight-loss drugs such as GLP-1s can reduce how much people eat out. Higher beef prices and higher minimum wages, such as California's $20 fast-food wage, lower franchisee profit first, and this can slow new restaurant openings. A food-safety problem, such as the E. coli outbreak in October 2024, can also cut traffic for months. A proposed class action filed in October 2026 alleges that McDonald's pricing tool breaks antitrust law. The case is at an early stage.

• October 8, 2026Bernstein cut its price target to $250 from $295. Bank of America kept its target of $343. In Restaurant Dive, the CFO said that the restaurant upgrades will come in phases, mostly with the normal remodel cycle, and that rent relief and capital support will be different in each market.
• October 6, 2026Bloomberg reported that some US franchisees object to the cost of the restaurant upgrades in the new plan, at least $800,000 per restaurant. The doubt also delayed franchisee visits to the prototype restaurant. On the same day, KeyBanc cut its price target to $280 from $305.
• October 5, 2026Wells Fargo cut its price target to $270 from $300, and Guggenheim cut its target to $250 from $290.